Key drivers should carry their growth momentum going into H2/22 as we see high growth in consumption and better-than-expected tourist numbers, as well as more broad-based improvement in employment and income. Despite softening global economic outlook, tourism is gaining traction from pent-up demand to travel and not that sensitive to global slowdown. b. For stagnation to occur, we should expect to see severe slowdown in key drivers. For example, we should expect to see very low tourist numbers for the remainder of this year or sustained price increases that severely affect consumption. This is unlikely to occur. (4) Most concerning risk to a smooth recovery is risks to the tourism sector from unpredictable and volatile shocks, e.g. a new covid variant which could trigger a ban on international travel, and geopolitical risks. Part 4: Concluding remarks 1. Aggressively rate hikes in order to curtail aggregate demand and bring down high inflation may be the right approach for some. It is however not universal and depends critically on the underlying nature of high inflation, the cyclical position of economic activity, as well as structural features of the economy that determine the degree of persistence of price shocks. The right policy approach is thus more nuanced and country-specific. 2. In the Thai context, the decision to start a gradual and measured monetary policy normalization only recently reflects our cyclical position, where the recovery is gaining traction later than others.
The ERPT could be higher in case of large and rapid baht depreciation, especially if coupled with rising oil prices. This could trigger a non-linear passthrough to inflation and could have a contractionary effect to the economy. This has not materialized. We will keep close monitoring. c. In Thailand, there is less chance of wage-price spiral given that there remains slack in the labor market. Moreover, the nature of the labor market structure in Thailand, where there is flexibility in labor movement and a lack of labor bargaining power, has helped suppressed wage pressure and prevented broad-based and persistent increases in inflation. On the contrary, a tight labor market such as in some AEs could also set a wage-price spiral effect in motion. In such circumstances, bold rate hikes are necessary to prevent a shift to a high-and-entrenched inflation regime. • Thailand has low share of wage earners at 44% and little wage indexation. • Labor cost is relatively low at 15% of total production cost. (2) Limited risks from Fed tightening to derail a smooth take-off 1. Depreciation of the baht (and most other Asian currencies) has been influenced by the US dollar. 2. Interest rate differential is not causing the capital outflow. Thailand actually saw net capital inflows of 4.8 billion USD YTD. In the past 8 months, only 3 of out 8 months that saw net capital outflows. 3.