By Fabiana Negrin Ochoa
Thailand's economy remains poised to recover this year, but recent setbacks will curb momentum, the World Bank said as it cut growth forecasts for the Southeast Asian country.
In a July report, the World Bank said it expects private consumption and tourism to help push gross domestic product growth to 2.4% this year. That compares with the 1.9% expansion seen in 2023 but is down from the 2.8% growth the bank had forecast in April.
"External and internal shocks exacerbated by underlying weaknesses have set back Thailand's recovery," the World Bank said.
It also trimmed the outlook for next year, now projecting that the economy will grow 2.8% versus 3.0% previously.
Weaker-than-expected goods exports and public investment drove the cut to this year's forecast, with the Thai economy registering subdued growth for a fourth straight quarter in the first three months of 2024.
Thailand's position as a trade and tourism hub leaves it vulnerable to global trade flows, and exports have faltered amid headwinds like soft global demand and shipping disruptions in the Red Sea, according to the report.
Budget approval delays also led to minimal public spending in the first quarter, diverging Thailand's postpandemic recovery further from its regional peers.
The country's rebound has trailed behind other economies in the region, held back by structural factors like weakening competitiveness that were likely exacerbated by Covid. Economists have flagged tight monetary policy as another factor, alongside political uncertainty and high levels of household debt.
The central bank has so far resisted pressure to lower borrowing costs. While the government has pressed commercial and state-owned lenders to lower lending rates for some consumers, the World Bank noted that this could undermine monetary policy transmission, and that lower rates are unlikely to address the structural issue of household debt.
Inflation has recently turned positive but remains the lowest among emerging markets, the World Bank noted.
Unlike some of its neighbors that have been fighting to bring down inflation, price pressures in Thailand have been subdued, fanning concerns about a weak economy and soft demand.
Still, there are reasons to continue to expect the economy will strengthen.
Accelerating the execution of the budget, which took effect late April after a seven-month delay, could boost economic activity for the rest of 2024, the World Bank said.
Tourism is projected to return to prepandemic levels in mid-2025, while high-frequency indicators suggest the manufacturing down cycle may have bottomed out and global trade seems to be on the mend. The Thai government's so-called digital wallet stimulus program could also boost near-term growth, according to the report.
Thailand still has space to raise tax revenue while meeting both spending and investment needs, the World Bank said, but that balancing act will likely get more complicated.
With consumption-stimulating measures and rising spending needs tipped to fire up public debt, "Thailand faces the mounting challenge of reconciling fiscal sustainability and short-term stimulus," it said.
Write to Fabiana Negrin Ochoa at fabiana.negrinochoa@wsj.com
(END) Dow Jones Newswires
07-03-24 0506ET
