Thailand’s Prime Minister Paetongtarn Shinawatra has called for enhanced collaboration between fiscal and monetary authorities to boost economic growth after the country missed its growth target last year. The second-largest economy in Southeast Asia grew by only 2.5% in 2024, falling short of the 2.7% growth anticipated in a Bloomberg News survey.
Government’s Growth Aspirations
Push for Higher Economic Targets
Prime Minister Shinawatra emphasized the need for the Bank of Thailand and the Finance Ministry to work together towards achieving a growth rate of 3.5% for 2025. This target is significantly higher than the 2.8% growth forecast by the National Economic and Social Development Council for the current year.
Tensions with Central Bank
Frustration over Monetary Policy
The administration’s call for stronger coordination reflects growing frustration with the central bank, which has consistently resisted government requests for interest rate reductions. Shinawatra previously described the central bank’s independence as a “hindrance” to governmental efforts aimed at stimulating the economy.
Economic Stimulus Measures
Fiscal Initiatives and Support Programs
The government has introduced a larger budget and allocated billions to assist vulnerable populations with rising living costs. These measures aim to stimulate the economy while also garnering political support from the electorate.
Monetary Policy Outlook
Potential for Rate Cuts
While the Bank of Thailand has maintained the policy rate at 2.25% since an unexpected quarter-point decrease in October 2024, some economists believe that the chances of a rate cut have increased due to the recent growth shortfall. However, others anticipate that the central bank will refrain from changing the rate to retain flexibility in addressing global uncertainties.
Investment Challenges
Decline in Private Sector Activity
Recent GDP data indicated that private investment has decreased for three consecutive quarters as of the October-December period of 2024. This decline is attributed to a lack of financing, particularly affecting small and medium-sized enterprises.
Long-term Economic Concerns
Structural Issues Hindering Growth
Thailand’s economic growth has lagged behind that of its regional counterparts, averaging below 2% over the past decade. This sluggish performance has been hindered by rising household debt and a manufacturing sector struggling against low-cost imports from China.
Future Outlook
Projections for Monetary Easing
Some analysts project that the Bank of Thailand may reduce its policy rate by an additional 50 basis points by the end of 2025. Such actions could potentially encourage investment activity in the upcoming quarters and help address the country’s economic challenges.
