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Thailand’s economy may achieve impressive growth, despite gloomy expectations

Thailand, like many emerging markets around the world, is feeling the pinch of inflation. This is, at least in part, due to the expectations that the Federal Reserve will be increasing rates soon, and the appreciation of the US dollar as a result. This tends to weaken the currencies in emerging markets, and Thai people are seeing this firsthand. Prices of various food items, especially pork, have risen in Thailand driven by a confluence of factors, including rising oil prices and an outbreak of swine flu. 

Inflation impacts the poor the most

Rising food prices, including animal food prices, tend to impact the poor the most. This is more so in a country that struggles with high rates of inequality like Thailand. The fact that the central bank kept its base rates at 0.5% in May 2020 (higher than in many other countries) did not seem to offset the effects. 

Other challenges to be addressed

The outlook for Thailand’s economy in 2022 is better than its actual performance in 2021. Despite this, there are some factors that could impact growth, such as high household and corporate indebtedness, according to statistics from the central banks. Household indebtedness could place pressure on domestic demand, whereas corporate indebtedness could slow down business growth. 

The fact that the cost of borrowing money is still cheap means that the impact of high indebtedness can still be contained. This might become somewhat problematic, however, if interest rates begin to rise sharply. 

Stock market performance

The main Thai stock index is still recovering and moving in an upward direction, edging closer towards its previous highs in 2018. This is all happening at a time when indices like the S&P 500 and Nasdaq are losing ground. As for the Baht, it has recently consolidated against the dollar after a decline. It looks set to strengthen, which could drive activity in the currency markets as forex traders attempt to take advantage of potential volatility. 

A cause for optimism

On the bright side, most countries are lifting COVID-19 related restrictions, which brings some relief to those economies with it. In the case of the economy of Thailand, which is highly dependent on income from, this is good news. The country has relaxed entry rules, which should increase revenues and provide a needed stimulus. 

Growth outlook

Thailand’s finance minister has recently expressed that he expects the country to grow at a rate of between 3.5% and 4.5%, buoyed by accommodative policy and revival of tourism, exports and investments. Government investments alone in infrastructure are worth around 900 billion baht. This is far better than the 1% growth rate expected readings in 2021, and much better than the contraction in 2020. 

Moreover, central bank officials expect inflation to be curtailed at around 1.7% this year and 1.4% in the next. 

Summary

The Thai economy faces challenges. However, its outlook is better than it was at the same time last year. Should certain pressures ease, growth might even beat expectations. 

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