Price pressure a concern as country could see slower growth ‘for the next five years’, says Sethaput

The country’s economic growth potential is expected to hover around the three-percent mark for the next five years, a decline from the average of closer to 3.5% reported in the years before the Covid-19 pandemic, according to Bank of Thailand governor Sethaput Suthiwartnarueput.

Between 2004 and 2013, Thailand’s economic growth potential averaged 3.8%, while the actual gross domestic product (GDP) grew at an average of 4% per year. Growth potential dipped to 2.7% between 2014 and 2023, and GDP growth similarly slowed to 2.8% a year.

Mr Sethaput said that while Thailand’s economy is recovering from the disruptions brought on by the pandemic, it is recovering at a much slower rate compared to its regional peers.

The slower recovery is largely due to the nation’s heavy reliance on tourism, which has been slower to rebound than other industries.

Furthermore, various structural issues, particularly in the manufacturing sector, as well as high levels of household debt, are dampening economic growth, he told a news conference on Thursday.

“Structural reforms are necessary to enhance Thailand’s economic potential, especially in the long run,” he said.

While he acknowledged that the economy is gradually recovering, Mr Sethaput said many households are still grappling with rising inflation.

Prices of fuel and fresh foods, in particular, have continued to rise, with gasohol 95, vegetable oil, and eggs increasing by 40%, 32.5% and 25%, respectively, over the past five years, according to the central bank.

“An economic growth potential rate of just 3% will not be sufficient to cover these increases,” the BoT governor said.

A survey carried out by the central bank found that incomes for employees in the non-farming sector and freelance workers increased by 8.9% and 9.2%, respectively, in the first quarter of this year — but the consumer price index rose by 7.15% in the same period.

He said the government’s 500-billion-baht digital wallet scheme may help stimulate the economy in the short term, but it will not strengthen Thailand’s economic potential in the long run.

The economy grew by a better-than-expected 1.5% in the first quarter on this year, but the pace slowed from 1.7% in the previous quarter.

The BoT projects GDP will expand by 2.6% this year and 3% next year. Last year’s expansion of 1.9% lagged regional peers.

The government has been pressing the central bank to lower its policy interest rate of 2.5% to spur the economy, but Mr Sethaput said the BoT must take into account the future economic outlook, rather than simply basing the decision on available data.

Product prices remain high despite lower inflation, he said.

The official Consumer Price Index in May rose by 1.54% from a year earlier, the highest in 13 months, and is expected to continue gaining slowly in June. The index rose by 0.6% in April.

“The current interest rate is still suitable for the economic recovery and allows inflation expectations to remain anchored within the target,” Mr Sethaput said.

Therefore, the BoT’s Monetary Policy Committee (MPC) has decided to maintain a steady policy rate. Should there be changes in the economic outlook, the central bank is prepared to adjust the rate accordingly, he said.

The next rate review meeting of the MPC is scheduled for Aug 21.