Thailand's economy to grow 2.9 per cent this year: World Bank
High inflation and household debt would be key risks in hindering the expansion of Thailand's economy this year and circular economy would play a vital role to sustain the country's growth, the World Bank has said.
According to the Thailand Economic Monitor 2022 published on Wednesday, World Bank projected that Thailand's economy would expand by 2.9 per cent this year, as the tourism industry and private consumption show positive signs of recovery.
However, there are some areas of concern, which are the rapid price surge and household debt. Meanwhile, global tensions from the Russia-Ukraine conflict and the uncertainty of the pandemic in China need to be closely monitored as well since these two scenarios affect Thailand's oil dependence and vulnerability to supply chain disruptions.
To maintain domestic consumption, Kiatipong Ariyapruchya, World Bank senior economist for Thailand, said the country requires some measures to control the price. Meanwhile, although the financial system remains stable overall, risks associated with increased levels of corporate and household debt persist.
World Bank projected that the country's headline inflation would stay at a 14-year high of 5.2 per cent this year with core inflation at 2.3 per cent before decreasing to 2.2 per cent next year. Export of goods are expected to grow at 4.1 per cent in 2022, slowing down after a strong outcome in 2021 at 18.8 per cent, reflecting the softening global demand, and the prolonged global supply chain disruptions.
Besides, the war in Ukraine may aggravate debt and poverty in Thailand through high food and energy prices. The World Bank estimates that a 10 per cent increase in the global prices of food would raise the poverty rate by 1.4 per cent, and an increase of 10 per cent in energyprices would raise the poverty rate by 0.2 per cent. Overall public debt has risen to 61.5 per cent this year and will grow to 62.5 per cent next year.
"Poverty and unemployment are estimated to have declined over the past year but labour incomes have fallen and household debt has increased to meet expenditure needs," said Kiatipong.
To combat high inflation, Kiatipong suggested that the Monetary Policy Committee of the Bank of Thailand (BOT) gradually raise interest rates. If the committee can raise interest rates in each round of meetings throughout the rest of this year, interest rates are expected to return to near-normal levels by 2023, when Thailand's economy recovers fully.
He added that the main objective of monetary policy is to stabilise the economy and inflation while supporting expansion. Hence, the interest rate hike requires to be adjusted at a gradual rate in line with the recovery stage so that the decision will not affect the growth.
Also, given the decline in Covid-19 cases and the further relaxation of border restrictions in Thailand and other countries, there are some encouraging signs that the country's economy will pick up steam in the second half and reach pre-pandemic levels in the fourth quarter of 2022.
Tourist arrivals are expected to reach 6 million in 2022, up from 0.4 million in 2021, and 24 million, or roughly 60 per cent of pre-pandemic levels, by 2024. As a result, 4.3 per cent and 3.9 per cent growth are projected for 2023 and 2024, respectively.
As the country moves into the recovery phase, it will be important to make progress on fiscal consolidation while rebalancing public spending towards public investment to help support the government’s vision to build back better and greener. Kiatipong suggest.
He stated that the BCG (Bio, Circular, Green) economy model could increase GDP by about 1.2 per cent and create nearly 160,000 new jobs by 2030, accounting for about 0.3 per cent of total employment. It can also help to stabilise volatile commodity prices and cut greenhouse gas emissions by about 5 per cent by 2030.
The World Bank has suggested several actions that the Thai government can take to support the circular economy. The first step is to create strong circular economy policies, legal frameworks, and institutional frameworks. Then, both the government and the private sector must work together to build institutional capacity and inter- and intra-agency coordination. Next, implement concerted action and targeted measures to enable missing complementarities, and finally, advocate for circular economy and raise awareness about resource intensity, pollution, and resource degradation.
According to Jaime Frias, senior economist at the World Bank, with rising domestic demand for resources, Thailand could add the circular economy approach to the pool of policy solutions that can decouple growth from a resource-intensive economy. He believes that unlocking Thailand's potential in this area will require a coordinated public and private response, as well as targeted reforms.