At its most basic level, the government exists to provide services that otherwise cannot be carried out by private market – things like infrastructure, law enforcement, or national defense. Public policy may also pursue social welfare objectives in accordance with its citizen’s wills, for example to promote income equality or access to health care and education. Finally, but no less important, public policy must provide a stable environment for the nation to prosper, and avoid being the cause of malaise itself. Based on these basic tenets, the present challenges for Thai policymakers are twofold. Public policy must first aid the private sector in overcoming structural bottlenecks and lift the economy’s potential growth by addressing areas where market has failed. Secondly, the policymakers must restore and maintain macroeconomic policy credence, and lay a stronger foundation for the economy to grow on a sustained basis. Let me take each of these in turn. 1. Structural policy to boost potential growth  The Thai economy is growing at a pace well below what a typical country with the same level of income should be able to attain. Failure to sustain a higher pace of growth over an extended period, even when demand pressure has eased, suggests that part of the problem could be from the supply side. It is no secret that infrastructure in Thailand needs an overhaul. Indeed, very few would dispute the merits of large-scale public investment.
We expect the recovery of domestic demand to gain more traction going forward, especially in the second half of this year. In light of these recent events, our latest growth projection for this year has been revised upward to 1.5 percent. While this figure may be much lower than long-term potential growth of around 4 to 5 percent, it is chiefly dragged down by the first-quarter contraction – bygones if you like. From this quarter onwards, we anticipate a clear pickup in growth and a V-shaped recovery. Many independent forecasters are currently holding a similar view, and most have revised up their growth projections after the political turning point in May. BIS central bankers’ speeches  1  This brighter economic outlook is not without risks, however. Exports of goods in particular have underperformed thus far this year, despite their insulation from domestic political turmoil. A number of factors are at play, some temporary, others more secular. Weaker economic growth in regional trading partners, including China and ASEAN, has been one cyclical hindrance. Global trade also appears to be lagging global growth, limiting scope for emerging economies like Thailand to leverage on advanced economies’ recovery. More deep-rooted structural issues at home may also be responsible, as segments of the manufacturing sector are not integrated into the modern global supply chain. For these reasons, exports may play a less active role in its contribution to growth this year. On the financial stability front, we remain cautious but optimistic.