IMF urges expansionary policy mix
The IMF suggested Thailand pursue expansionary fiscal and monetary policies to rev up economic growth momentum for this year and next.
“Expansionary monetary policy and fiscal loosening are desirable to mitigate the slowdown. The government should speed up infrastructure project spending that could lead the private sector to increase investment, while higher imports will also help the country’s currency appreciation problem,” said Jonathan Ostry, deputy director Asia and Pacific Department at the IMF.
Thailand’s current account surplus suggested strong foreign reserves and capital inflows, but the baht’s stability will build up investors’ confidence, he said.
The baht yesterday hit the strongest level since May 2013, hitting 30.21 against the greenback. The currency has risen 7.75% so far this year, making it the best performer in Asia.
Global economic slowdown will continue, weighed by protracted global policy uncertainties, said Mr Ostry.
The multinational lender predicts Asia will expand 5% this year and 5.1% next, a downward of 0.3-0.4 percentage points from its projections in April. If the forecast holds true, Asian economic growth will be the slowest since the global financial crisis but such growth still makes it the fastest-growing region with contributions of more than 70% to global growth.
In response to the bleak world economic outlook, the IMF lowered its forecast for Thailand’s economic growth to 2.9% for this year from 3.5% predicted previously and 3% for 2020 from 3.5% due to the weaker external demand.
The latest projections for Thai economic growth is well below its forecast for emerging markets and developing economies at 5.9% for 2019 and 6% for next year.
Thailand’s economic growth will lower than other Southeast Asian countries. The IMF predicted Vietnam will expand 6.5% in both 2019 and 20, the Philippines will rise 5.7% and 6.2%,
Indonesia at 5% and 5.1%, and Malaysia at 4.5% and 4.4%.
Mr Ostry voiced concerned that household debt remains high while retirement savings are quite low, which could add to fiscal burden in the long run.
Monetary policy should be more aggressive to prevent the global monetary easing from posing risks to financial stability, particularly for corporate and household debts.
Thailand’s economic slowdown suggested that structural reform is needed to sustain economic growth and enhance financial inclusion, said Mr Ostry.
Risks in Asia-Pacific are clearly skewed to the downside, he said.
A key risk is intensified trade tensions, which could further weigh confidence, weaken trade, investment and growth. Although the US and China announced a set of trade-related understandings on Oct 11, postponing planned tariff hikes, several issues remain open and the path to solving them is still unclear.
A faster than expected slowdown in China could have significant negative spillovers, given the close trade linkages and integration of Asian economies in global value chains. There could also be considerable financial spillovers via exchange rate and capital flows.