The Thai National Bank anticipates GDP growth surpassing their predictions, driven by the new government’s economic initiatives, tourism, and consumption growth.
The central bank’s Monetary Policy Committee (MPC) expressed at their previous meeting that they foresee sustained growth in the Thai economy with potential inflationary risks.
The main drivers for this economic growth would be tourism and private consumption, with a projected recovery of goods exports in the latter half of 2023.
The course of China’s economy and policy changes are considered critical factors influencing export and tourism trends, as noted by the MPC.
“Upside factors for growth include foreign tourist arrivals and the new government’s fiscal and economic policies, which could lead to stronger than expected domestic demand, especially in 2024,” the central bank reported in their statement on Thursday.
The Thai National Bank estimates a GDP growth of 3.6% in 2023 and 3.8% in 2024.
The bank predicts a continued robust recovery in the tourism sector, with a rise in foreign arrivals from various countries.
The bank updated its foreign arrival prediction to 29 million for 2023 and 35.5 million for 2024, up from the previous 28 million and 35 million forecast in March.
Private consumption is expected to continue growing, driven by positive shifts in overall employment and labour income, specifically in the service sector and among independent workers who directly profit from the recovery of tourism, as per the bank’s report.
However, there are two factors related to inflation risks.
Firstly, an increase in demand could occur in the context of the growing economy, especially if the tourism recovery or fiscal stimulus under the new government’s economic policies are stronger than anticipated, according to the bank.
Secondly, the cost incurred by producers in the past could escalate inflationary pressures.
The MPC recognises that future inflation trends might be partially influenced by new government policies.
Higher minimum wages could potentially lead to price increases for goods.
Linking minimum wage to inflation might further heighten pressure on labour costs and goods prices, possibly triggering a wage-price spiral with potential consequences for long-term price stability, the bank indicated.
Several characteristics of the Thai labour market can mitigate certain risks. One of these is the flexibility provided by the supply of foreign workers and labour mobility.
Additionally, Thai workers generally have lower bargaining power compared to their counterparts in other countries.
The proportion of labour costs in the country also helps reduce risks. For an average business, labour costs only make up about 15% of total production costs.
This relatively small percentage helps limit the impact of labour costs on the business.
Moreover, the share of wage earners in Thailand’s labour force is comparatively small. They account for only 45% of the total, while in developed economies like the US, Germany, and the UK, wage earners make up about 90% of the labour force.
Hence, the potential impact of a minimum wage hike on total demand and the risk of a wage-price spiral should be less significant in comparison to other countries, as stated by the central bank.
The MPC aims to track the effects of the new government’s policies and evaluate their potential inflationary impact, including wage changes, business pricing behaviour, and public mid-term inflation expectations, as detailed in the central bank’s policy report.
The central bank forecasts a headline inflation of 2.5% for 2023 and 2.4% for 2024.
Core inflation is projected to remain stable at 2% for both 2023 and 2024.