Standard Chartered Bank: Thailand's economy remains in expansionary cycle, BoT's policy rate to stay on hold

"The Thai economy remains in an expansionary cycle despite a slower-than-expected economic recovery. With the new government in place, domestic demand is expected to drive the local economy before the tourism recovery begins to pick up at a faster pace," said Dr. Tim Leelahaphan, economist, Standard Chartered Bank (Thai).

Tourist arrivals passed the 17.5 million mark in the first eight months of this year, with 2.2 million arriving each month on average. With the high tourist season approaching, Standard Chartered Bank expects the number of monthly arrivals will increase to 3 million from late September, lifting total arrivals to 30 million for 2023. Thailand attracted a record number of nearly 40 million tourists in 2019, before the pandemic.

Due to an unclear global economic outlook, Standard Chartered Bank has lowered Thailand's 2023 current account surplus forecast to 1.5% of GDP, compared with an earlier projection of 3.6%. The fiscal deficit is projected to widen to 4.0% of GDP in 2024, from 3.8% in 2023.

"The disbursement of the 2024 fiscal budget will be delayed, while the Pheu Thai-led government's ability to implement its pledged economic policies is still to be assessed," said Dr. Tim.

Reflecting Thailand's recent economic data, Standard Chartered Bank has revised down its 2023 GDP forecast for the country to 3.3% from 4.2% and projects 2024 GDP to grow 4.2%, compared with 4.5% estimated earlier. Consequently, the projection for 2023 core inflation is lowered to 1.3%, compared with 1.7% previously expected. The bank has raised its 2024 core inflation expectation to 1.5%, from 1.3% previously. In the meantime, the forecast for 2023 headline inflation is maintained at 1.4%. However, the bank expects inflation to edge higher next year.

"The gradual pace of the economic recovery so far, fiscal uncertainty and low headline inflation in recent months argue against another interest rate hike. Given there is an upside inflation risk, a rate cut is unlikely over the next couple of years," said Dr. Tim.

"However, the idea of resuming rate hikes may emerge in the last quarter of this year, especially if inflation rises faster and more strongly than we currently expect. In addition, clarity on fiscal policy and evidence of a more solid tourism revival could further justify building policy space."

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