Thailand’s economy is expected to make a moderate recovery this year and the next, continuing its recovery last year after a slowdown induced by political uncertainty, the International Monetary Fund (IMF) said.
“The recovery is expected to strengthen moderately, with real GDP growth projected at 3 percent in 2016 and 3.2 percent in 2017,” it said in a report released recently.
Public investment will remain a key driver, rising over the next few years and crowding in private investment. Other growth drivers are a slight improvement in confidence, low energy prices, and a pickup in private consumption.
However, important risks cloud the outlook. “On the external front, rebalancing in China may result in a faster slowdown and larger negative spillover. A bout of global financial volatility could accelerate capital outflows and further tighten financial conditions,” it added.
Against the lackluster outlook and downside risks, Thailand’s strong fundamentals provide room for maneuver to lift economic prospects in both the near and the long run, said the report.
The IMF recommends three main areas of focus: deploying an expansionary macroeconomic policy mix that aligns short- and long-term goals, safeguarding financial stability, and enhancing potential growth.
“The government’s ambitious investment plans are essential to upgrade infrastructure, support the recovery, crowd in private investment, and boost potential investment,” it said.
The IMF also recommends that Thailand gradually increase its value-added tax to 10% once the recovery is on sound footing, besides developing social safety nets that are better aligned with structural challenges.
There is also room for further monetary easing, it said, while recognizing that the Thai monetary policy framework has achieved a high standard of transparency.
On the government’s drive to encourage higher value-added activities through revised incentives and taking advantage of Thailand’s special economic zones, the IMF called for periodic evaluation, careful coordination, and clear communication to enhance the cost effectiveness of these incentives.
It also said that trade integration could enhance external competitiveness and catalyze structural reforms.