Thailand’s economy is showing signs of recovery, yet economists warn of ongoing risks that could hinder its growth potential. Key challenges include elevated household debt, slow income recovery for vulnerable groups, and Thailand’s economic interdependence with China.
Despite these issues, the Thai economy reported a growth of 1.9% in 2023, although this was below expectations. The economy is gaining strength, supported by strong private demand, a rebound in tourism, and increased government budget allocation.
Growth forecasts predict an increase to 2.8% this year and 3.3% in 2025, largely due to the continued focus on government spending, especially through initiatives like the digital wallet scheme, along with strong exports and tourism.
Economists from the ASEAN+3 Macroeconomic Research Office (AMRO) spoke on the expected short-term growth in their Annual Consultation Report on Thailand for 2024.
“Tourism is expected to exceed pre-pandemic levels in 2025. Government spending is set to accelerate, with the revised digital wallet scheme set to lift short-term growth.”
Headline inflation is anticipated to decrease to 0.7% this year from 1.3% in 2023, thanks to energy subsidies and reduced prices of essential goods. However, inflation is expected to rise to 1.5% in 2025 as subsidies are gradually removed and the economic recovery gains momentum.
Lingering problems
Short-term risks, highlighted by AMRO, include potential export weaknesses, potential delays in government spending, and sluggish private investment. High household debt and a slow income recovery among vulnerable groups could challenge consumption and affect banks’ asset quality. AMRO economists also spoke on the issue of public debt.
“Over the longer term, Thailand faces a public debt sustainability risk and a persistent decline in growth potential. The failure to adapt to digital and decarbonisation trends could render key export sectors uncompetitive.”
AMRO’s report, released yesterday, November 27, advises the Thai government to focus on securing macro-financial stability and revitalising structural transformation to achieve higher growth in the long term. They suggest that additional monetary policy easing might be necessary if economic growth underperforms.
Revitalising economic transformation is crucial for Thailand’s long-term growth. This includes enhancing agricultural productivity, shifting labour from agriculture to more productive sectors, transitioning manufacturing towards new growth areas, and unlocking the service sector’s potential through infrastructure improvements, according to AMRO.
The office indicates that Thailand could reach high-income status by 2050 if it continues on its current path. However, with bold reforms and effective development plan implementation, this status could be achieved by the early 2040s, reported Bangkok Post.
Maybank Investment Banking Group in Kuala Lumpur notes that evolving economic ties with China present challenges for Thai policymakers. China’s industrial leadership could pose challenges to regional economies with overlapping structures.
Rising global trade tensions may lead to an influx of Chinese products in neighbouring markets, threatening local market shares.
Balancing protecting domestic firms and jobs while fostering beneficial relationships with Chinese companies is crucial, Maybank advises.
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