By The Nation
The latest forecast came after economic adviser Ana Corbacho led an IMF mission from March 3-18 to conduct the 2016 Article IV Consultation. The mission exchanged views on recent economic developments and the country’s outlook with the government, the Bank of Thailand and other public institutions. It also met with private-sector analysts and academics.
According to Corbacho’s statement after the conclusion of the visit, the Thai economy recovered in 2015 after a slowdown induced by political uncertainty.
Headline inflation dropped by 0.9 per cent, undershooting the central bank’s target of 2.5 per cent plus or minus 1.5 percentage point +(-) 1.5 percent, mostly due to the fall in energy prices.
Core inflation and inflation expectations also declined.
The current-account surplus rose to 8.8 per cent of GDP, thanks to a sizeable improvement in the terms of trade, soaring tourism and import compression associated with tepid domestic demand.
Thailand’s financial markets weathered relatively well the repeated episodes of global financial volatility. The recovery is expected to strengthen moderately. A slight improvement in confidence and low energy prices foreshadow a pick-up in private consumption.
Public investment will remain a key driver, rising over the next few years and crowding in private investment.
Headline inflation is projected to turn positive this year, but may take time to reach the midpoint of the inflation target band.
The current-account surplus is projected to shrink over the medium term, as the positive shocks to terms of trade partially reverse and domestic demand improves.
Important risks cloud the outlook. On the external front, rebalancing in China may result in a faster slowdown or larger negative spill-overs.
A bout of global financial volatility could accelerate capital outflows and further tighten financial conditions. On the domestic front, slower-than-expected execution of mega-projects will reduce domestic demand, the IMF says.
Negative inflation could linger longer than expected, resulting in higher real interest rates and a rising real debt burden. Against the lacklustre outlook and downside risks, Thailand’s strong fundamentals provide room for manoeuvring to lift economic prospects in both the near and long terms.
The IMF mission’s recommendations focus on three main areas – deploying an expansionary macroeconomic policy mix that aligns short- and long-term goals, safeguarding financial stability, and enhancing potential growth.