Thailand’s Covid-19 pandemic battered Thai economy is likely to see a recovery only in 2023 as the country continues to battle the rising inflation and weakening consumer confidence, the Bank of Thailand came out to announce.
Thailand, which has only started to see a recovery during the course of this year after the country reopened to tourism in July this year, has seen some boost in confidence as consumers start to spend on goods and services, after more than 2-years of Covid-19 induced lockdowns.
Sethaput Suthiwatanaruput Governor of the Bank of Thailand (BoT) came out to say that he was confident that the Thai economy was witnessing a recovery and would likely reach pre-Covid levels by the end of this year or early next year.
The BoT governor is confident that the Thai economy will recover to be close to before the pandemic of COVID-19 adding that there arere 5 key factors that will drive the Thai economy to grow.
- How to make the Thai economy recover without interruption (Smoot Take off)
“The factor that could hinder the recovery is inflation. It may cause recovery to be interrupted, or the financial situation is too tight, or the financial sector does not play a role in supporting the recovery, that may cause the economy to stall.
Therefore, it must be ensured that this will result in a smooth take off, so it is imperative that gradual policy normalization is required. If not, the inflation cannot be controlled” said Sethaput.
- Keeping household debt at a sustainable level, or at 80% of gross domestic product (GDP), is another important issue.
Currently, the household debt level is as high as 88-89%. If household debt is not adjusted to a sustainable level, it may cause economic expansion to stumble.
As for solving the household debt problem must be made comprehensive by looking at before debt period, between debt and during the time that there is a problem in incurring debt as well.
“Troubleshooting in this matter can’t be done a lot by the same time because resources are limited and must not create distorted motivations. The solution must be done on the spot rather than generally. And the solution must not be pushing the burden of debt, such as deleting credit bureau information because in the end if there is no information it will make lenders not want to give loans to debtors” said Mr. Setthaput.
- Green or sustainability trend by the role of the Bank of Thailand is how to make the financial sector to help and support in such matter.
- Digital by creating an infrastructure that facilitates the emergence of new industries or creating a foundation in ecosystem.
- Internal development (HROD)
Governor of the Bank of Thailand Sethaput
While Methee Suphaphong, Deputy Governor for Financial Stability at the Bank of Thailand said that the Thai economy this year is expected to grow by 3.3% and next year at 3.8%. The recovery will be in the form of a K-shape or uneven recovery.
Commenting on the runaway inflation, he said inflation rate is expected to peak in Q3 of 2022 and will gradually enter the target range of 1-3% in the middle of 2023.
The runaway inflation rate has been an issue that has been the reason why the BoT has raised the repurchase rates by 0.50% in the past 2 meetings (August 10th and September 28th). The BoT is expected to raise as much as 0.50% during the next meeting on November 30th as the various central banks around the world are raising rates at unprecedented pace. The policy rate of Thailand currently stands at 1%.
Thailand’s inflation has been hitting 14-year high as August’s data showed that consumer price index (CPI) stood at 7.86%, while those in July at 7.61%, June at 7.66% and May at 7.1%.
The next MPC meeting is set for November 30th just about 28-days after the US’ Federal Reserve Bank (FED) meets to possibly raise rates once again.
The FED which has raised 0.75% for each the past 3 meetings (2.25% in total), has openly said that it would continue to reign down on inflation and was open to more such aggressive rate hikes in the near future. Fed latest 75 basis-point interest rate increase, lifting its policy rate target range to 3%-3.25%. The next FED meeting is slated for November 1/2.
Late last week, San Francisco Federal Reserve Bank President Mary Daly came out to say that she believes it will take raising interest rates to a 4.5%-5% range and holding them there through the end of 2023 to get US’ inflation under control.
Methee of BoT said that MPC resolved to raise interest rates by 0.25% each time for the past 2 times in a row, by sees that it is appropriate for the context of the economy. He said that if the MPC raises rates too sharply in a short time it will affect the fragile group and might make people who are in the lower income segment suffer because this fragile group still has a high household debt burden of 88% per GDP.