World Bank lowers Thailand’s GDP growth forecast from 2.8% to 2.4%

The World Bank's East Asia and Pacific Economic Update forecasts released on Tuesday said that the economy in the East Asia and Pacific region would expand by 4.8% in 2024 but would slow to 4.4% in 2025.

China, the region's largest economy, is expected to see declining growth due to its struggling property market, diminished consumer and investor confidence, as well as structural challenges such as the transition to an ageing society and global conflicts.

However, the forecast predicts economic growth in other parts of the region to reach 4.7% in 2024 and 4.9% in 2025, driven by increased domestic consumption. Goods exports have recovered, and tourism has rebounded.

Among larger countries, only Indonesia is expected to maintain growth levels in 2024 and 2025 that match or exceed pre-Covid-19 pandemic levels. Other nations are projected to remain below their pre-pandemic growth rates.

The Thai economy is forecast to expand by 2.4% in 2024 and 3.0% in 2025, down from the April report's projections of 2.8% and 3.0% respectively.

Pacific Island countries are expected to see economic growth of 3.5% in 2024 and 3.4% in 2025, supported by tourism recovery, although investment growth remains weak across the region.

Manuela V Ferro, World Bank vice president for East Asia and the Pacific, stated that whilst countries in the region continue to drive global economic growth, the pace has begun to decelerate. 

She emphasised that East Asian and Pacific nations must take proactive measures to modernise their economies to adapt to evolving trade and technological patterns.

Thailand's economic challenges

During an online press conference earlier this week, Aditya Mattoo, the World Bank's chief economist for the East Asia and Pacific region, highlighted several challenges facing Thailand. 

The country's GDP growth has averaged just 2.6% annually since 2010, lagging behind regional peers. Investment and productivity growth have been relatively weak, structural transformation has stalled, and inequality remains significantly high. Furthermore, a rapidly ageing population means fewer working-age individuals to support future growth.

Mattoo explained that rising geopolitical tensions have led to fragmentation in international investment and trade. Additionally, rapid technological advancements are transforming consumer behaviour, production processes and labour markets. The post-pandemic emergence of disruptive technologies – including green technologies – could challenge Thailand's traditional export model, which relies on low-cost labour.

"Thailand is vulnerable to the physical impacts of climate change due to its long coastlines, fragile agriculture system, and susceptibility to flooding and other extreme weather events," he noted.

Reform recommendations

To achieve high-income country status by 2037, Thailand needs to maintain an average growth rate of 5% over the next 13 years, requiring bold reforms focusing on accelerating private investment and innovation growth by reducing policy uncertainty, strengthening competition policy and opening up the services sector.

Mattoo pointed out that a commitment to increasing public investment in vital areas such as human capital, climate adaptation, and the development of last-mile infrastructure in underserved regions complements these measures. 

Additionally, he said there is a focus on developing secondary cities to drive investments in high-growth potential areas, promoting balanced economic development, and fostering more inclusive growth across the nation.

As the population ages, mitigating its impacts is of utmost importance. This involves extending working lives, enhancing female labour force participation, and adopting strategic approaches to migration. 

"These initiatives are complemented by reforms aimed at improving education and labour market outcomes, ensuring that the workforce has the skills required to meet private sector demands. Thailand can use this multifaceted approach to stimulate economic activity while also creating a more equitable and resilient society," he said. 

Fiscal considerations

Mattoo emphasised that Thailand's revenue collection is low relative to its income level. He suggested several measures to boost revenue, including:

Increasing the value-added tax rate and reducing exemptions
Broadening the personal income tax base and reducing allowances
Expanding property tax collection

The government must also mobilise sustainable sources of climate financing to meet its spending commitments and investment needs whilst maintaining fiscal sustainability.