Economists worry despite IMF’s positive forecast for Thai economy

Though the Finance Ministry is optimistic about Thailand’s economic prospects after the International Monetary Fund (IMF) upgraded the country’s GDP growth to 2.9% from 2.7%, many economists remain worried.  

Despite the modest increase, Finance Minister Pichai Chunhavajira described the revised forecast as encouraging. “Although the difference of 0.2 or 0.3% is low, it is still good amid an ongoing downturn,” he said.

The minister also confirmed that the government will proceed with the additional 122 billion baht for fiscal 2024 to fund the 10,000-baht digital handout scheme, which recently passed the House’s first reading.

KKP Research, however, raised concerns about Thailand’s post-pandemic recovery, highlighting a slump in growth potential. It noted that the country’s economic growth has progressively weakened since the 1997 Tom Yum crisis, dropping from over 7% to 5%, then to 3% after the 2007-2008 global financial crisis and to 2% after the 2019 Covid pandemic.

The research house also warned that without substantial economic structural reforms, Thailand’s growth could fall below 2%. It attributes this potential decline to a shrinking workforce, which could reduce the GDP by 0.5% annually until 2030 and by 0.8% per year until 2040. If Thailand’s fundraising or productivity drops, its GDP could slump by 1.3% annually by the end of the next decade, KKP Research said.

It also highlighted two main challenges for Thailand: A decline in domestic purchasing power and productivity. It also pointed to a 2.1% drop in money entering the economy, which it attributed to a drop in local purchasing power, diminishing competitiveness and insufficient public sector investment.

The company also expects the Thai economy to be at risk due to geopolitical tensions, which could trigger a disruption in the global supply chain, trade and investment. Plus, rising household debts, dropping debt quality, strict financial policies and commercial banks’ strict rules on granting loans is further hindering the expansion of investments, it said.

Hence, KKP Research said, the government should focus on increasing productivity, attracting skilled labour, reforming education and finance, and liberalising the service sector to revitalise GDP and attract investment.

Amonthep Chawla, chief of the CIMB Research Office, said economic restructuring is necessary to enhance labour potential and attract foreign investment, with an emphasis on financial discipline, technological advancement and educational reform.

While the Bank of Thailand projects a 3% annual growth, CIMB forecasts growth of around 2.5-3% over the next decade due to declining labour potential.

“The Thai economy could be worse than Japan, where economic growth slumped to 1% due to a significant drop in population,” he said, adding that an ageing society could similarly trigger difficulties for Thailand, especially in coping with the middle-income trap.

Hence, he urged the government to address structural issues by implementing measures to boost the potential of labour and adopt innovation to prevent labour stagnation.

“Today we already have the immediate problem of slow economic growth, but the Thai economy would worsen if the situation remains the same,” the economist said.