Thailand’s Finance Minister Pichai Chunhavajira aims to raise inflation to 2% to drive annual GDP growth by over 5%, up from a projected 0.4% inflation rate in 2024. The Fiscal Policy Office meanwhile releases projections, forecasting 2.7% growth this year and 3% in 2025.
Thailand’s Minister of Finance, Pichai Chunhavajira, this week called for higher price inflation in the kingdom to boost nominal GDP growth. In short, Mr. Pichai argued that inflation should be nearer to 2% instead of the projected 0.4% for 2024. At that rate, Mr. Pichai predicted that Thailand could see over 5% per annum growth. The latter was confirmed by the Fiscal Policy Office afterwards, as it projected the Thai economy to grow by 2.7% this year, followed by 3% growth next year.
This week, Deputy Prime Minister and Minister of Finance Pichai Chunhavajira explained his reasons for seeking higher inflation in Thailand. Essentially, the government’s economic chief suggests that with 2% inflation and domestic growth of 3.5%, the Pheu Thai target of over 5% growth per annum is achievable.
However, the headline inflation rate in 2024 is projected only to be 0.4%. At the same time this week, the Fiscal Policy Office predicts growth for Thailand’s economy at 2.7%, specifically in a range of 2.2-3.2%.
Nevertheless, the Finance Minister and Bank of Thailand Governor Sethaput Suthiwartnarueput had a meeting on Tuesday where there was some consensus. Certainly, it was agreed to keep the bank’s inflation rate target at between 1-3%. This comes despite the actual levels this year falling well below that target.
Central bank attributes higher core inflation to subsidies and programs for energy cost stabilisation
Nonetheless, sources within the central bank suggest that core inflation is somewhat higher. In particular, they point to government subsidies and efforts to rein in energy costs. These programmes impact both domestic users as well as business concerns.
Nonetheless, Mr. Pichai, on Tuesday last, after meeting the central bank chief, explained his thinking on inflation further.
“I have no issue with the inflation range remaining at 1-3%, but an actual inflation rate below 1% is unacceptable,” he said. “Raising inflation requires additional measures to support economic growth. Measures to encourage higher inflation and lower interest rates can promote domestic investment.”
He then explained that with 2% inflation and domestic production up by 3.5%, Thailand’s nominal GDP figure would reach 5.5%. In addition, with GDP growing at this rate, the government would have room to borrow more and further stimulate growth.
Finance Minister urges Bank of Thailand to address exchange rate and support private investment
Furthermore, the Finance Minister has encouraged the Bank of Thailand to think about the country’s exchange rate, in addition to calling for further reduction in the borrowing rate.
Mr. Pichai said as a trading country dependent on exports and tourism, the exchange rate was an active factor in economic performance, just as lower borrowing rates would assist higher private investment.
Later, the Fiscal Policy Office released news on the country’s economic growth, which significantly showed private investment is expected to contract by 1.9% this year.
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Pichai again emphasised that strong private investment leads inevitably to higher private consumption.
“I would like both the exchange rate and inflation policies to support economic growth,” the Minister of Finance said.
Thailand’s headline inflation rate in September was 0.6%. Nonetheless, the nine-month total was only 0.2% as inflation only moved into positive territory in April 2024.
Bank of Thailand and government reach consensus on inflation target, welcomed by investment community
Mr. Pichai said that an inflation rate of 2% would be healthier. Certainly, the economy could manage better with this level of price growth.
“I would like both the exchange rate and inflation policies to support economic growth,” he said.
Nonetheless, the consensus reached this week between the central bank and the government was welcomed in Bangkok by the investment community. At length, the Bank of Thailand believes that inflation will move up if the economy is allowed to grow and gain further traction.
The Fiscal Policy Office’s projection of 2.7% growth in 2024 is an improvement on the 1.9% growth seen last year. However, past years have shown the need for caution.
In addition, Thailand is still labouring under structural problems, chief among them record levels of household debt and business debt. Underlying this are also issues with manufacturing output.
Decline in Thailand’s manufacturing index reflects challenges in the auto industry and construction sector
Thailand’s Manufacturing Production Index (MPI) fell by 3.5% year-on-year to 92.4 points in September, due mainly to sluggish car and construction industries, while the outcome of the US presidential election may pose a fresh challenge in this year’s final quarter, says the Office of Industrial Economics (OIE).
In short, the latest figures from the Office of Industrial Economics (OIE) confirm this. September’s Manufacturing Production Index (MPI) fell 3.5% from last year’s figure.
The reason is the downturn within the country’s critical automobile industry, triggered by EV car production. At the same time, a crisis is developing within the country’s property and construction sector. The index ended up at 92.4 for the year.
At the same time, the update for the government agency warned against possible negative repercussions from the US presidential election, particularly a Trump victory leading to higher and blanket tariffs on imports. Notably, the United States is Thailand’s largest export market.
Fiscal Policy Office forecasts 2.7% growth, with tourism and welfare boost but flags trade surplus decline
Nonetheless, the update from the Fiscal Policy Office at the Ministry of Finance this week was certainly more positive. The briefing was given by Mr. Pornchai Thiraveja, the Director-general. The growth projection of 2.7% remained unchanged from July.
Among the key drivers of growth is the foreign tourism industry. 36 million foreign tourists are expected to enter Thailand before December 31. They are anticipated to spend ฿47,000 per head, and therefore generate ฿1.69 trillion in income.
The figures for October were 28.3 million, spending ฿1.3 trillion.
At the same time, exports are set to surge by 2.9% this year, while private consumption is up 4.6%. Undoubtedly a key factor with the latter figure was the ฿142 billion disbursed in the first tranche of the Digital Wallet giveaway. This was aimed at 14.2 million people on social welfare and with disabilities.
In the meantime, stable prices for crude oil created a more benign environment for growth and costs. The minister projected a final inflation figure of 0.4%. Certainly, he feels this is too low, and it is indeed outside the Bank of Thailand’s 1-3% target range.
Thailand forecasts a $13.5 billion trade surplus in 2024; and eyes 3% growth next year if global stability holds
Thailand is projected to enjoy a trade surplus in 2024 of $13.5 billion. Significantly, this is down from $19.4 billion in 2023.
After that, the Fiscal Policy Office is predicting 3% GDP growth in 2025. This is dependent on an overall improvement in the world economy.
However, this will require both political stability at home and abroad, both of which cannot be guaranteed in an unpredictable environment.
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In brief, the 2025 projections see an increase in foreign tourist numbers to 39 million, or an 8.3% rise. At the same time, it projects an expansion of exports by 3.1%.
Growth next year is also expected to be supported by a 4.7% rise in public investment. This includes Phase Three of the development of Laem Chabang Port in Chonburi. In addition, the development of double-track rail networks and the longstanding high-speed rail link between key airports. In short, the latter is between Don Mueang Airport, Suvarnabhumi Airport, and U-Tapao Rayong–Pattaya International Airport.
This project, between the government and a private consortium, has been delayed for some time. However, a deal worked out last week by the Ministry of Transport is understood to pave the way for construction.
Furthermore, the Fiscal Policy Office was able to point this week to significant investments for foreign firms in Thailand. These are likely to take shape in the course of 2025.
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