The International Monetary Fund confirmed yesterday that the economy is set to stage a sharp recovery from last year's devastating floods, with growth of 5.5 per cent this year and 7.5 per cent next year, thanks to reconstruction and fiscal stimulus.
Thailand’s trend line will be steeper than that of Asean as a whole, which is forecast by the IMF to head up 5 per cent this year and 5.5 per cent in 2013.
Naoyuki Shinohara, deputy managing director of the IMF, said the Thai economy had proved resilient and would see strong domestic investment and consumption in the coming years.
Fiscal stimulus helps support domestic demand in the face of volatility in the external environment, which could continue in the medium term, he said during a lecture on the global and regional economic outlooks and the role of integration in Asia.
“We welcome the government increasing productivity and making growth more inclusive,” he said.
The outlook for the Asian economy has brightened, but growth risks from the European debt crisis persist. Asia’s trade and financial exposure to downside risks in the global economic uncertainty is high.
According to IMF data, Asian countries sent value-added exports to the fragile US economy and financially troubled Europe worth from 5 per cent to nearly 25 per cent of their gross domestic product in 2010.
Foreign holdings ranged from 10 per cent of total outstanding local-currency government bonds in Thailand to nearly 35 per cent in Indonesia in the fourth quarter of last year.
The European debt crisis could cause volatility in financial markets, which move on news, Shinohara said. The best way to cope with the volatility in the region is to manage macroeconomic policy appropriately.
“There’s also upside risk for growth. Surging capital flows in Asia could strengthen as risk aversion disappears. High oil prices will also add to inflationary pressure,” he said.
As trade within Asia has been fuelled by vertical integration, centred in China, Asean countries could gain benefits through rebalancing in Asia’s largest country to boost its domestic consumption.
“Asean appears to be well positioned to benefit from consumption growth in China,” he said.
China’s consumption is still low, averaging nearly 40 per cent of GDP from 2004-2008, while in the United States consumption amounted to about 70 per cent of GDP. In Thailand, it is more than 50 per cent.
Trade within Asia has been increasing, accounting for 55 per cent of total Asian merchandise exports in 2011, compared with 49 per cent in 2000, according to IMF data.
Greater regional integration could bolster Asian economic rebalancing and make the region more resilient to external shocks, Shinohara said.