Today I would like to highlight four key risks that could create more turbulence in the short- to medium-run: the tightening global financial conditions, growing trade disputes, geopolitical risks, and domestic financial stability risks resulting from the prolonged period of very low interest rates. Soon after the Global Financial Crisis, Thailand’s economy—like that of other EMEs—felt the unintended consequences of advanced economies’ unconventional monetary policy stimulus. Large capital inflows in search for higher yields caused significant upward pressure in asset prices as well as on EMEs’ currencies and corporate debt. It is inevitable that the reversal of that extreme measures—i.e., monetary policy normalization—would have the same sizable effect on EMEs as well, and this constitutes our first source of risk. In addition to the Fed, more central banks are expected to normalize their monetary policies in the coming years. As excessive liquidity unwinds, higher yields will drive up costs of capital faced by firms and governments, while EMEs with vulnerable external conditions and weak currencies will also face with increased external debt liabilities measured in local 1  currencies. Moreover, according to the Institute of International Finance, approximately 2.7 trillion US dollars of EME bonds and syndicated loans are due by the end of 2019, with approximately a third of that amount denominated in foreign currencies. Weaker currencies and high correlation of EMEs’ long-term bond yield to the US Treasury yield could reduce the ability of EME firms to service debt and could undermine economic stability.

While exports of goods and services expanded robustly, the growth of domestic demand continued to register well below historical average, creating the so-called “two-speed economy.” However, concerns over the economic recovery have lessened over the past few quarters, as the economy has shown signs of a more balanced growth. We begin to see that the growth in export sector started to spill over to other parts of the economy, particularly private consumption and private investment. According to our projection, private consumption was projected to continue its solid expansion, as the underpinning factors such as employment and consumer confidence continued to show signs of improvements. Private investment continued to expand with additional supports from public investment projects as 3  well as heightened overall confidence. In our latest forecast, the economy is projected to grow at 4.4 percent this year and 4.2 percent in 2019—the strongest twoyear performance since 2008. Nonetheless, in this multidimensional nature of financial and economic development, bounded by the tight-knitted inter-country financial linkages, a strong domestic economy alone may not be enough to safeguard itself from external shocks. Thus, the best thing a country can do to protect itself is to build immunity and resilience for the economy. Against external volatilities and volatile fund flows, our flexible exchange rate regime has served as the first line of defense, with foreign exchange interventions being used to calm disorderly markets. Our international reserves are around 3.2 times short-term external debt (compared to only 0.7 during the Asian Economic Crisis in 1997).