Sethaput Suthiwartnarueput - Bank of Thailand Governor | Thai PBS World Exclusive

Summary

The Governor of the Bank of Thailand discusses the country's economic situation, forecasting a 2.5 to 3% GDP growth for the year, influenced by structural challenges and weaker cyclical tailwinds. Key concerns include manufacturing, exports, and tourism, with a heavy reliance on China affecting these sectors. The Governor emphasizes the need for medium-term structural reforms to diversify Thailand's economy and attract foreign investment, while also addressing the creative tension between the government's growth focus and the central bank's stability mandate.

Takeaways

• 📈 The Bank of Thailand's interim economic forecast for the year is a GDP growth between 2.5% to 3%, which is lower than initially expected but still indicates positive growth.
• 🌐 Structural headwinds and weaker cyclical tailwinds are impacting Thailand's economic recovery, particularly in exports which haven't recovered as strongly as anticipated.
• 🏭 The Governor's immediate concern is the performance of manufacturing and exports, along with tourism, which are key drivers of Thailand's economy.
• 🇨🇳 China plays a significant role in Thailand's economy, accounting for 12% of exports and about a third of tourists, making its economic situation closely watched by Thai authorities.
• 💵 Thailand's reliance on China is substantial, and there is a need for medium-term structural reforms to diversify and find new engines of growth.
• 🔄 The geopolitical tension and discussions around friend-shoring, near-shoring, and reshoring present opportunities for Thailand to realign and take advantage of its relationships with major powers like China and the US.
• 📉 Thailand's market share for attracting foreign direct investment has been dropping, indicating a need to make the country more attractive to investors.
• 🌱 Focusing on sustainability, including renewable energy, is important for attracting foreign direct investment to Thailand.
• 📜 Signing and implementing free trade agreements is crucial for countries looking to invest, and Thailand needs to improve in this area to boost its economy.
• 🏢 Thailand needs to liberalize its regulatory and legal regimes to become more business-friendly and attractive to foreign investors.
• 🏛️ The relationship between the Bank of Thailand and the Prime Minister is professional and cordial, with a natural tension due to their different roles and mandates.

Q & A

What is the current economic forecast for Thailand in terms of GDP growth?

The Bank of Thailand's interim guidance for the economic forecast this year is expecting GDP growth in the range of 2.5 to 3%, which is lower than previously forecasted but still indicates positive growth.

What are the main factors contributing to the weaker economic recovery in Thailand?

The weaker recovery is attributed to both structural headwinds and weaker cyclical tailwinds. Exports have not performed as expected, and there are structural challenges along with competition from China in third countries.

What is the Bank of Thailand's immediate concern in the near term?

The immediate concern is related to manufacturing and exports, as well as tourism, which are key drivers for the Thai economy. The situation in China is closely monitored as it significantly impacts these areas.

How does the recovery of tourism in Thailand compare to pre-pandemic levels?

Tourists are returning, but they are spending less than expected, which is a constraint on the economy's recovery.

What is the significance of China's economy to Thailand's economic outlook?

China is a significant factor in Thailand's outlook as it accounts for about 12% of Thai exports and a third of its tourists.

What steps can Thailand take to reduce its reliance on China's economy?

Thailand can engage in medium-term structural reforms to find new engines of growth and diversify its reliance. It can also take advantage of geopolitical tensions by positioning itself as a friend-shoring or near-shoring destination.

How does the Bank of Thailand view the competition with other Southeast Asian countries for foreign direct investment?

Thailand has seen its market share for attracting FDI drop over the years, and it needs to make itself more attractive by improving its regulatory and legal regimes, signing free trade agreements, and ensuring a sustainable energy source.

What is the relationship like between the Bank of Thailand and the Prime Minister?

The relationship is described as professional and cordial, with a mutual respect. However, there is a natural tension between the government and the central bank due to their different roles and priorities.

How does the Bank of Thailand's Monetary Policy Committee operate?

The Monetary Policy Committee in Thailand is composed of seven people, with four being outside members. The decisions on interest rates are made collectively by the committee, not unilaterally by the governor.

What is the Bank of Thailand's stance on lowering interest rates to stimulate the economy?

While lowering interest rates could stimulate the economy, the Bank of Thailand must balance this with considerations of financial stability and household debt levels. The stimulative impact may not be as large due to structural factors affecting growth.

How does the Bank of Thailand's interest rate compare to other countries around the world?

At 2.5%, Thailand's policy rate is not alarmingly high compared to other countries and is among the lowest globally, with only Japan and Switzerland having lower rates.

Outlines

00:00

📈 Economic Outlook and Challenges for Thailand

The Governor of Thailand discusses the country's current economic situation, forecasting a GDP growth of 2.5 to 3% for the year, which is lower than expected but still positive. He acknowledges the recovery has been weaker due to structural headwinds and weaker cyclical tailwinds, particularly in exports. The Governor expresses concern over the near-term outlook for manufacturing, exports, and tourism, which are key drivers of the economy. He highlights the importance of China's economic situation, as it significantly impacts Thailand's exports and tourism. The Governor also stresses the need for medium-term structural reforms to diversify Thailand's economic reliance and mentions geopolitical tensions affecting global trade.

05:03

🌐 Geopolitical Relations and Economic Strategy

The script continues with the Governor discussing Thailand's geopolitical relations, particularly with China and the United States. He notes Thailand's advantageous position due to its close ties with both superpowers. The Governor also mentions the importance of Japan, which has a significant investment in Thailand. He discusses the need for Thailand to become more attractive to foreign direct investment by improving its business environment, signing free trade agreements, and increasing the use of renewable energy. The Governor acknowledges that Thailand has not fully capitalized on its relationships with these major powers and suggests that there is room for improvement.

10:06

🤝 Collaboration and Creative Tension with Government

The Governor talks about his professional and cordial relationship with the Prime Minister, emphasizing the different roles they play. He describes the 'creative tension' between the government, which favors growth, and the central bank, which focuses on stability. He explains that while there is pressure from the government to reduce interest rates to stimulate the economy, the central bank must consider a broader set of factors, including inflation and financial stability. The Governor also discusses the collaborative relationship between the central bank and other economic planning agencies in Thailand.

15:06

📉 Balancing Growth and Stability in Monetary Policy

In this paragraph, the Governor explains the central bank's flexible inflation targeting framework, which considers growth, inflation, and financial stability when making interest rate decisions. He argues that while lowering interest rates could stimulate the economy, it must be balanced against the risk of increasing household debt, which is already high. The Governor points out that the reasons for Thailand's economic underperformance are not directly related to interest rates but rather to structural factors and global economic conditions. He concludes by stating that despite being referred to as 'decade-high', Thailand's interest rates are among the lowest globally, and the decision to maintain rates is based on a comprehensive assessment of domestic factors.

Keywords

💡Economic Forecast

An economic forecast is a prediction or projection of future economic conditions, such as GDP growth, inflation, and employment rates. In the video, the Bank of Thailand's economic forecast for the year is mentioned, with an expected GDP growth range of 2.5% to 3%, indicating a positive but weaker than expected recovery.

💡GDP Growth

Gross Domestic Product (GDP) growth is a measure of a country's economic growth over a specific period. The script discusses Thailand's GDP growth expectations, which are lower than initially forecast but still positive, reflecting ongoing economic recovery.

💡Structural Headwinds

Structural headwinds refer to long-term challenges that hinder economic growth. The script mentions that Thailand's economic recovery has been affected by structural headwinds, such as difficulties in exports, which have not performed as expected.

💡Cyclical Tailwinds

Cyclical tailwinds are temporary economic forces that boost economic activity. The script implies that the expected cyclical tailwinds, which could have helped in the recovery, have been weaker.

💡Manufacturing and Exports

These are key drivers of Thailand's economy. The script discusses concerns about the manufacturing sector and exports, which are crucial for the country's economic growth.

💡Tourism

Tourism is highlighted as a significant factor for Thailand's economy, especially in terms of employment and income. The script mentions the impact of Chinese tourists on the tourism sector and the challenges of reduced spending.

💡China's Economy

China's economy has a substantial impact on Thailand's due to trade and tourism. The script discusses the importance of monitoring China's economic situation and how it affects Thailand's exports and tourism.

💡Structural Reforms

Structural reforms refer to long-term changes aimed at improving a country's economic structure and performance. The script suggests that Thailand needs to engage in structural reforms to find new engines of growth and diversify its economic reliance.

💡Foreign Direct Investment (FDI)

FDI is an investment made by a firm or individual in one country into business interests located in another country. The script mentions the decline in Thailand's market share for attracting FDI and the need to make the country more attractive to investors.

💡Free Trade Agreements

Free Trade Agreements (FTAs) are agreements to reduce trade barriers between countries. The script points out that Thailand has lagged in signing and implementing FTAs, which is a missed opportunity for attracting investment and accessing third-country markets.

💡Interest Rates

Interest rates set by central banks influence borrowing costs and economic activity. The script discusses the pressure on the Bank of Thailand to reduce interest rates to stimulate the economy, balancing growth with financial stability concerns.

💡Household Debt

Household debt refers to the total amount of money that households owe. The script mentions Thailand's high level of household debt, which is over 90% of GDP, as a concern for long-term financial stability.

Highlights

Thailand's GDP growth forecast for the year is between 2.5 to 3%, indicating ongoing recovery but weaker than expected.

Structural headwinds and weaker cyclical tailwinds have affected Thailand's economic recovery.

Exports and tourism are key drivers of Thailand's economy, with domestic consumption holding up well.

China's economic situation significantly impacts Thailand's exports and tourism.

Thailand's reliance on China's economy is substantial, with China accounting for 12% of exports and a third of tourists.

Thailand's central bank governor discusses the need for medium-term structural reforms to diversify economic reliance.

Thailand's geopolitical position could be advantageous amidst global realignments and tensions.

Thailand has strong relations with both China and the United States, which could be leveraged for economic benefits.

Japan's significant Foreign Direct Investment (FDI) in Thailand could be a strategic advantage.

Thailand's market share for attracting FDI has been dropping, indicating a need for more attractive policies.

Sustainability and renewable energy are important factors for foreign investors considering Thailand.

Thailand needs to sign and implement more Free Trade Agreements to attract investment.

Regulatory and legal reforms are necessary to make Thailand more business-friendly for foreign investors.

The central bank's relationship with the Prime Minister is professional and cordial, despite differing roles and views.

The Bank of Thailand operates under a flexible inflation targeting framework, balancing growth, inflation, and financial stability.

Lowering interest rates could stimulate the economy, but must be balanced with financial stability considerations.

Thailand's high household debt is a concern for long-term financial stability.

The stimulative impact of lowering interest rates might not be significant due to structural issues affecting growth.

Thailand's policy rates are among the lowest globally, despite being referred to as decade-high domestically.

Transcripts

Governor said put how is Thailand doing

in terms of its

economic

situation and the forecast that the bank

of Thailand is giving to 2024 yeah our

interm guidance for the economic

forecast this year uh which we put out

the last NPC statement um pending our

official release at the next NPC meeting

in April was we expect to see GDP growth

this year in the range of 2.5 to 3% M

which is uh not great it's a bit lower

than what we had to forecast but it's

still uh uh it's still growth positive

growth and it's a ongoing recovery um we

have to say that again um the recovery

has been weaker than we had expected um

I think uh we're we're being hit both by

a lot of uh structural headwinds as well

as weaker cyclical Tailwinds a lot of

the things that we expected to see in

terms of um a stronger recovery in terms

of exports Haven panned out the way we

expected and I think we're facing again

um a lot of structural challenges as

well MH as the governor of the Central

Bank what's your main concern now

immediate immediate or medium term ah

okay in the next way year or so yeah

okay uh my immediate near-term concern

is is again has a lot to do with what

what's going to happen in terms of our

manufacturing and exports um and and and

tourism because those are the key

drivers for our economy right now

domestic consumption has held up quite

well but the things that that we're

looking forward to to try to help

sustain a recovery are exports and and

tourism and a big player in that and a

big uh um uh uh key key factor in that

is is is China of course so um yeah

we're paying very close attention to

what what what's happening in China and

and how uh it affects us both again in

terms of our exports to China uh also to

third countries because we see um

increased competition from China in

third countries that we export to yes

and also in terms of uh the recovery in

tourism because we see the tourists

coming back yeah uh but they're spending

less so that's another constraint on us

as well and we also see again I think

that China seems to be encouraging uh

their people to travel more well also to

spend more domestically to to um travel

domestically rather than go overseas uh

so I think those are some changes that

that will affect us uh in terms of the

Outlook so Thailand's Reliance on

China's economy is quite heavy yeah what

is the way out of that it takes time of

course but yeah there must be some kind

of yeah Advanced plan planning yeah to

see whether Thailand can balance its

okay baskets of Interest yeah yeah in

the near term again given where we are

um and I said your first question about

the near-term Outlook uh so much of it

is is is tied to what happens with uh

China um because uh China is about uh

12% of our exports and about a third of

our tourists and tourism is such a huge

footprint not just in terms of headline

GDP but in terms of employment and

incomes here in Thailand so it has a a

big a big factor but the thing that that

will help is is again to engage in um

medium-term structural yeah reforms to

try to try to find new engines of growth

um to try to diversify uh again our our

our our Reliance and and on this I have

to say I think we we we have some

advantages on this front uh we just need

to realize them uh actualize we have

advantages that we don't know about no

well we we know about them but we're not

taking full advantage of them as as as

we should such as as we know right now

there's a lot of geopolitical tension

right um and you know this talk about

friend Shoring near Shoring reshoring

all that stuff MH and know the dangers

that the the world is trying to to

bifurcate in a sense um um uh um along

along um the lines that that we know but

if you look at that um I would argue

that Thailand is we're actually not that

poorly positioned to take advantage of

some of those um that realignment right

why because if you look at Thailand um

we're very close to China for the

reasons that we cited um I think they're

very good relation we don't have that

many conflicts with China compared to

many other countries we we you know

don't have an issue in the South China

Sea unlike other countries with China um

so yeah um we're a good friend to China

I think the relations are very good

between our countries we're also by

history by tradition by many many things

a very very uh close friend of the

United States yeah we are a major one of

the few uh one of not many I should say

um major that has a status of being

being a major non-nato US Ally right um

and and our relations go back you know

for for you know 19 years yeah yeah and

and I think the whole um uh you know

cooperation during the Vietnam war the

whole Cold War you know made our

particularly on the security front

between the US and Thailand there's this

element of trust and and and and uh

long-standing uh uh close so why I not

we taking enough advantage of both major

Powers superpowers yeah

the the one I would just add onto that

also is is it's not just with us and

China if you think about the other very

important play out there Japan Japan of

course yeah uh Japan uh for us uh again

Thailand is the country which has the

largest stock MH of FDI

investment from Japan in Asia outside

China yeah after China it's us yeah and

so you know Japanese have a very very

big wellestablished footprint here and

we have again very close relations with

ch with Japanese I think um uh you know

Tai's love to go to Japan you know this

is this is natural Affinity between

Thailand and I think and Japan um so

we're we we're so we're tied in uh uh uh

potentially to you know all the major

they all love us but we have not taken

enough Advantage exactly of the Affinity

yes that's the so what have we not done

right yeah in in this connection we

haven't made ourselves sufficiently

attractive to those production networks

um so for example I think I think one

thing uh that we've seen which is

unfortunate is we've seen uh over the

years that our market share for example

in attracting foreign direct investment

has dropped steadily over time yes uh we

know there are a lot of bright lights

out there that are very attractive you

know people are in love with the you

know the Indonesia vietn story you know

a lot of FDI going there there's not as

much coming into Thailand but again I

think um given that now there's probably

going to be a greater emphasis on

resiliency yes not just like efficiency

and trying to get the absolute lowest

cost but to a place that is you know

resilient that's safe that's stable

that's there sustainable yeah um those

things are important but but there are

things that we need to do to make

ourselves more attractive you mentioned

sustainable that's a perfect example one

thing that's very important for foreign

direct investors is to try to make sure

that their carbon footprint um is is is

limited and so energy is a very

important part of that so trying to make

sure that a a a sufficient percentage of

our our energy is is from uh renewable

sources is very important uh for uh

foreign investors to to come come come

to Thailand uh another aspect which I

think we've been lagging as well is in

uh signing uh uh and implementing

foreign tra a Free Trade Agreement yeah

um uh when when countries want to invest

obviously they want to be able to access

Third Country markets and other

countries in the region particularly

Vietnam has done a very good job on this

front uh We've tended to lag a bit so

there things like that that we need to

do uh another example uh uh is is trying

to liberalize our our um our Regulatory

and um legal regimes to make it more

business friendly more attractive to

foreign investors and Indonesia is a

good example I think of a country which

has done uh uh made made good progress

on that so these are again the kinds of

things that we need to do and there are

also examples that other countries uh

have done that I think we need to do in

order to actualize and realize those

opportunities that we I think we we have

the advantages that we have your

relations with the Prime Minister has

been in the headlines both locally and

internationally how do you describe your

relationships with prime minister seta

oh as I mentioned they're professional

and and cordial um cordal cordal yes

it's it's never a good thing I I think

when the central bank is is is on the

front page of the newspaper no no no

news is good news no news is good news

yeah so it's not something that we we so

what basically is the issue between you

and the Prime Minister oh I think it's

uh uh comes from the fact that uh we

have different roles to play and that we

wear different hats uh I think it's it's

a an issue that um we see um not just in

Thailand but I think in many countries

yes where there's this natural uh

tension I I called it a creative tension

creative creative tension you don't

enjoy it but it's creative creative it's

there uh between the government and the

uh and the central bank I mean the

government obviously is tends to favor

growth the central bank by nature of its

mandate uh it it tends to to put a

significant weight on stability yes uh

governments tend to be shorter term and

orientation the central bank again tends

to look at longer term issues and then

and then by Nature we need to look at um

uh things in a much more holistic

fashion take into account uh unintended

consequences of of different measures so

I think that leads to that difference of

um of of of of of of opinion and and

that creative tension that we describes

your relationship with him as having

mutual respect I think that that says a

lot about the official relationship yeah

but your staff Central Bank and uh

NDB the National Economic planning

agency and the finance

Ministries uh what is the

agency that they have the fiscal policy

office fiscal polic your staff and their

staff work together oh absolutely very

very closely uh uh we're share

communication yes we're in Comm uh we're

in contact uh uh regularly and I have to

say that um um when because we're we're

operating pretty much off the same set

of data yes um our our views and Outlook

are are broadly in line um I know

there's been again in the press and

whatnot some some uh

have written about how the the forecast

and what the outlooks are not are not

aligned right U but I I would argue and

I would like to try to point out that a

lot of times these differences in terms

of for for example the Outlook and the

forecast that the different agencies

have they they occur because they occur

at different times so you know if if

someone has a say they did their

forecast you know X months ago yes um

that forecast might be on the high side

because things have turned out a bit

softer than we had expected right and

those that did the forecast more

recently those will tend to be a bit

lower so if you compare those two

different forecasts because they're at

different points in time the forecasts

look quite different but if you if you

look now for example we're you know

pretty much operating at the with the

same data set and at the same time uh I

think that the the forecast for this

year for the key agencies us the nesdb

and the um uh the Ministry of Finance

broadly in line like I said we haven't

put out our official forecast yet but

our interim guidance 2.5 to 3% for this

year is again broadly in line with what

the nesdb put out and also with what the

what the Ministry of Finance put out for

this year as well you're under great

pressure from the government to reduce

interest rates how do you react to that

it's part of the job to be under

pressure yeah how do you explain to the

government oh I I would say the

politicians that you have your you know

role to play and they have their own

role to play but they seem to think that

you are not being realistic yeah that

you do not understand the common

people's problems yeah you people are up

there in the Ivory Tower right right

right so are you up

there I I think again it comes that

difference comes from the fact that

we're wearing different hats and we have

that different emphasis um the

short-term versus long-term right uh

looking at growth versus stability and

you know how do you weigh those things

uh that's what's accounting for the the

the difference in in in opinion

regarding the policies but again uh in

terms of explain explaining uh our our

policy stance and and our policy

decisions which again I would like to

emphasize are the policy decisions of

the monetary policy committee yeah not

just me or the bank of Thailand because

the monetary policy Committee in

Thailand which is fairly unique actually

it's not the same as with other

countries we have seven people we have

seven people on the monitary policy

committee what's different in Thailand

uh compared to a lot of other countries

a lot of other central banks is there

are more outside members

on the committee than they are internal

Bank of Thailand people is that the rule

no it's by law by in in Thailand four

against three yeah exactly there they

three internal people uh me and then two

Deputy Governors and then the other four

are from outside who chooses who Choose

The Outsiders um the our board the bank

of Thailand board chooses who uh the the

composition of the of the monetary

policy committee um based on on

recommendations from from from from us

from the bank of Thailand but um uh

which is quite different from a lot of

other countries where they're more in

internal people than outside people so

again I want to emphasize that the the

decisions that are taken are are uh from

the uh monetary policy committee not

just from the from the bank of Thailand

or at the behest of the of the governor

I I cannot in prati in principle or in

practice dictate what the interest rate

will be so any decision has to be from

the committee not oh absolutely I say

yeah yeah yeah yeah yeah like I said

it's certainly not a unilateral decision

so you don't think lowering the

insurance rates has anything to do with

the trying to boost the economy to

stimulate the economy as the government

has suggested they are suggesting that

if you cut interest rates it would

stimulate the economy but you saying

that it may not be that direct the

relationship um no what we're saying is

it has to be balanced with a lot of

different things um our our our the

framework that we have for for making

interest rate decisions is what we call

our flexible inflation targeting

framework we look at three things um uh

primarily when deciding that we look at

growth obviously and growth we we we

would like to see growth be close to

what we feel as our long-term uh uh

sustainable rate of growth which based

upon our latest estimates and whatnot is

ballpark about 3%

real GDP growth uh we look at inflation

and for that we expect we would like

headline inflation to be within our

target range which is 1 to 3% headline

and then we also very importantly need

to look at Financial stability so when

we decide what to do with grates we

can't just look at just any

one variable like GDP growth and and

focus just on that we need to take a

look at the totality uh take all these

things into consideration so getting

back to your question um uh would

lowering rate

tend to have a stimulative impact on the

economy uh the short answer is yes it

would tend to have a stimulative impact

on the economy but one that has to be

balanced with the other considerations

that we have on the table notably things

like Financial stability because the

other thing that we have that is of

quite High concern for us we have very

very high level of household debt

household debt is like 90 plus perc of

GDP um that does not bode well for

long-term Financial stability we would

like to see that get back on a more

sustainable path and uh part of the

reason that that debt has gone up to

that level uh so rapidly in the past uh

has to do in part uh either in large or

small part uh uh to the fact that rates

in Thailand have been low for so long

yeah so um that's first point that that

we have to balance it with the other uh

considerations uh things like on the um

uh Financial stability front the second

point also is the stimulative impact

getting back to more directly to the

question mean not be that large why

because if you look at the reason that

growth has tended to underperform it it

has to do with factors like our exports

are not doing as well as as we had

expected and that has a lot to do with

structural factors I think yes that

China is not importing a lot of the

stuff that we're exporting particularly

on things like petrochemicals and

chemicals it has to do with the fact

that tourists aren't spending as much as

we had expected right uh which doesn't

have a lot to do with interest rates it

has to do with the fact that uh

government dispersement has been a bit

below expectation

does much to do with interest rates so

if you look at the reasons that growth

is underperformed it doesn't have that

much to do with interest rates interest

rates would help perhaps offset some of

that slow of growth from boosting

consumption uh and possibly investment

at the margin but if you look at

consumption consumption has been growing

at a rapid rapid clip um you know last

year consumption grew basically at

record levels so the additional boost

that you would get from consumption

probably from low rates is probably not

that much and also probably not that

desirable if it comes at the expense of

increasing household debt which is not

something that we would like to see so

it's it's again you know taking that

totality of of of of factors into

account and take into account some of

the longer term implications that uh uh

caused the majority of the NPC members

to decide to keep rates at at where they

were at

2.5% which in the Press is usually

referred to as decade High interest

rates

yeah but I would also point out which

while that is true it is also true that

is it is also among the lowest in the

world there are two countries out there

that have uh uh interest rates policy

rates uh that are lower than ours which

is Japan and Switzerland uhhuh all the

other countries have policy rates that

are higher good company yeah I I don't

know but the point is that you know

compared to other countries it's not you

know alarmingly high it's certainly not

the level that we see in other countries

but again I'm not saying that that's the

main factor in deciding what to do with

rates we will look first and foremost at

domestic factors but um but they always

like to point out in the Press decade

High yes decade high but also it is true

but but yeah the other side is also true

yeah thank you very much Governor thank

you