BANGKOK – Thailand’s newly appointed central bank governorsaid Monday that the country’s economy is entering a difficult transition, and that he stands ready to tailor the bank’s policies to support more growth while strictly managing price pressures.
“Stability is key. During a transition period we have to make sure stability is key,” Veerathai Santiprabhob told The Wall Street Journal in his first interview with international media since becoming the Bank of Thailand’s governor in September.
At the same time, Mr. Veerathai said weak inflation means the Bank of Thailand has more leeway to help buoy the country’s troubled economy as it grapples with a host of challenges, from slowing demand in China to tensions in the Middle East to Thailand’s struggle to regain its former status as one of the world’s most attractive locations for foreign manufacturers.
“Our primary mandate is domestic monetary stability,” Mr. Veerathai, 46 years old, said. “But when we are not subject to strong pressure on prices, we can be more accommodative to other considerations, but it doesn’t mean that we want to forego price stability, which is our core mandate.”
Thailand, once one of the world’s fastest-growing emerging economies and hub for global names such as Toyota Motor Corp. and Ford Motor Co., has struggled to recover from the impact of devastating floods in 2011 that shut down much of its industrial output. Combined with lower prices for agricultural exports and the rise of new competitors for investment, notably Vietnam, this has knocked the wind of its economy’s sails.
Exports, an important driver of Thailand’s economy, fell 7.4% on year in November, and by 5.5% over the first 11 months of the year. Exports contracted in both 2013 and 2014, and an overall decline is certain this year too. The Bank of Thailand forecasts growth to remain flat in 2016, and last week cut its economic growth target for next year to 3.5% from 3.7%, compared with this year’s forecast of 2.8% growth.
Economists say Thailand’s political upheavals, which culminated in a military coup last year, have added another layer of uncertainty that has complicated the country’s attempts to regain its old luster and dented local confidence, too.
The Bank of Thailand’s Monetary Policy Committee twice cut its main policy rate in 2015, down to 1.5%, to support borrowing and investment, and Mr. Veerathai on Monday said the committee could again cut rates in the coming months if the situation warranted.
The big question mark in 2016, he said, was the extent to which demand in China will slow as its economic planners attempt to steer its economy toward a more consumer-based model.
“China is a major world economy and the transition there could definitely have a strong impact on countries like Thailand,” Mr. Veerathai said. “We stand ready to be more accommodative if need be.”
Thailand’s own domestic problems present another problem.
Mr. Veerathai, a former economist with the International Monetary Fund who has also served as a policy researcher at Thailand’s finance ministry and as chief strategy officer at the Stock Exchange of Thailand, said he was concerned about the danger of an uneven economic recovery. He said that while urban areas, particularly Bangkok, may perform relatively well in the coming months, he and other economic policy makers are worried about how depressed commodity prices, especially those of rubber, are hurting rural communities.
He also pointed out how changing demographics are beginning to weigh on the country. Thailand is one of the world’s poorest countries to face the phenomenon of aging, with the average woman now giving birth to 1.6 children, about the same as China and less than the 2.1 children that statisticians regard as being adequate to maintain a country’s population.
Thailand’s workforce is beginning to contract as a result, creating pressure to improve productivity if the country is to continue to grow, Mr. Veerathai said.
The ruling junta recently introduced new measures including tax incentives to bring more research and development-oriented investment to the country to help address the problem. It is also attempting improve efficiency at the country’s state-owned enterprises, which together invest more money each year than the entire national government.
Meanwhile, Mr. Veerathai says there are some signs that some of the worst might be over for Thailand’s economy, at least in the short term. Private consumption in October, the latest month for which data is available, rose 2.2% on year, while private investment grew by 1.5%.
Moreover, long-delayed government investments in major infrastructure projects might be realized in 2016, providing some fresh impetus to support growth. Some smaller ones have already been bid out.
“We will have to keep our eye on this,” Mr. Veerathai said, to make sure they provide a sufficient boost to keep the economy growing.
By James Hookway and Nopparat Chaichalearmmongkol