Rising consumption to drive growth says World Bank

Improving consumer confidence should translate into increased consumption to foster economic growth of 2.5 percent this year, supported by government infrastructure spending, according to a forecast on the Thai economy by the World Bank released last week that also highlighted the challenges posed by the weak global economic environment.

Although Thai growth of 2.5 percent would represent a small decrease compared to the 2.8 percent of 2015, the slight slowdown is in line with the Bank’s forecast for all of East Asia, where growth is expected to decline to 6.3 percent from 6.5 percent on the Bank’s expectation that China’s economy will continue to cool down.

In the near term the Bank pointed to the Thai government’s planned infrastructure development, and the accompanying public and private investments that will drive that program, as key to economic performance and growth,

In addition, Thailand’s currency, the baht, was more stable than most others in the region, and its foreign reserves were also steady. The current account surplus continued to grow despite lower exports, and the Bank described public debt as moderate at 30 percent of gross domestic product. “Private consumption will underpin growth, driven by improving consumer confidence, but export growth will likely remain soft given weaker demand from China,” the report said.

China, however, posted stronger than expected economic results for the first quarter of 2016, providing a ray of hope that growth in the region, and in Thailand, could prove a bit better than expected. China’s imports of Thai goods is a significant factor in the Kingdom’s economy, which is still dependent upon exports even as consumption and investment are starting to play greater roles.

“The region’s growth prospects faces a challenging backdrop: slow growth in high-income countries, a broad slowdown across emerging markets, weak global trade, persistently low commodity prices, and increasingly volatile global financial markets,” the World Bank said in its East Asia Pacific Economic Update.

On the other hand “the region has benefited from careful macroeconomic policies, including efforts to boost revenue in commodity-exporting countries. But sustaining growth amid challenging global conditions will require continued progress on structural reforms,” the report said.

Commodities are an important component of Thailand’s overall export machinery, with shipments of rice, sugar, rubber, seafood, cassava and other agricultural goods supporting growth, jobs and revenue. Manufacturing, however, brings in the lion’s share of the country’s export earnings as hard-disk drives, electronics and parts, and vehicles and parts remain strong performers.

Thai policymakers are also committed to fostering more research and development in a medium- to long-term structural reform to transition to a more creative and knowledge-based economy. To support that shift, investment incentives have been adjusted and improvements and streamlining in processes that affect ease of doing businesses are being adopted.