IMF Sees Growth Slowing In 2025 Pointing To Urgent Reform Need

The IMF has finished its Article IV consultation and recommended neutral fiscal policy and a focus on structural reform to improve competitiveness. It said that the recovery was losing momentum and that the pickup in growth expected this year will be short-lived. While the Bank of Thailand (BoT) should be prepared to tighten further if needed, policy is appropriate.

• The IMF expects Thai GDP to improve to 4.4% this year from 2.5% boosted by fiscal stimulus and robust consumption but then the economy is forecast to slow to 2% in 2025. It sees the risks to the downside.
• Headline and underlying inflation are projected not only to remain within BoT’s 1-3% target band but also under 2% over the forecast horizon. Recently BoT noted that price pressures are being held down by government subsidies and don’t reflect underling demand. The IMF has advised that the government end these costly subsidies.
• There are numerous risks to Thailand’s outlook from both external and domestic factors. It warned that a lack of fiscal discipline, high private debt and the reliance on tourism increases the country’s “vulnerability to external shocks”, such as from the global economy, geopolitics or rising commodity prices.
• Fiscal policy should be neutral and government debt trend lower while still encouraging investment in people and physical capital. A gradual increase in the VAT rate, “greater progressivity in the tax system” and more spending “efficiency” were also suggested.
• In terms of structural reform, it should be targeted at improving competitiveness, removing excessive regulation and boosting capex (which the IMF forecast to fall as a share of the economy in 2024 before rising 1pp in 2025).
• It said that the external position was “stronger than implied by medium-term fundamentals” but FX intervention should be limited.