Economic recovery hampered by weak manufacturing and public investment
Thailand's economic recovery from pre-pandemic levels is lagging behind its ASEAN peers by 14% due to weak manufacturing and public investment, the World Bank said on Monday.
In 2023, the Thai economy grew by just 1.9% compared to 2.5% in 2022 due to a 1.7% year-on-year contraction in exports, driven by declines in overseas sales of agro-manufacturing products, hard disk drives, plastics, metal and steel.
“The prolonged delay in budget approval for fiscal 2024 has caused public investment to slow,” said the Bank’s senior economist for Thailand, Kiatipong Ariyapruchya.
The World Bank expects Thai economic growth to accelerate to 2.8% this year, driven by tourism and domestic consumption. However, it said the outlook is weak due to dimmer export and public investment prospects.
“Fiscal responses to high energy prices have slightly slowed the path towards consolidation but supported the recovery,” Kiatipong said, adding that the digital wallet scheme could boost economic growth by 1% but will increase the public debt.
Under the scheme, all Thais over the age of 16 with a monthly income of less than 70,000 baht and bank deposits lower than 500,000 baht will receive 10,000 baht via a digital wallet to spend at local businesses.
The committee charged with considering the scheme expects to submit all the final details for cabinet approval within this month, with the registration for recipients and businesses to start in the third quarter of this year and the money remitted in the fourth quarter.
Outcomes for Thailand’s social and economic development
In the medium term, Thailand is facing the challenge of addressing the rising spending needs associated with ageing, environmental degradation, climate change, and the need to rebuild the policy buffers to prepare for future shocks.
The World Bank’s senior economist Ekaterine Vashakmadze identified five high-level outcomes to help Thailand revitalise growth and become a high-income country by 2037, while also fostering a more equitable society and building a sustainable, climate-resilient economy.
According to the report, these are:
• Strong human capital: Thailand must improve outcomes by increasing education spending and optimising resource allocation as several factors are preventing Thailand from being an inclusive, skills-based, innovation-driven country. These include an ageing population, sub-optimal female labour force participation and vulnerable groups’ exclusion from accessing social welfare.
• A competitive and innovative economy: Thailand’s productivity growth faces challenges from weak competition and restrictive trade policies in the services sector, hindering business innovation. To tackle this issue, the country must enhance tech competitiveness, strengthen competition regulations, attract skilled professionals, and empower small and medium-sized enterprises through increased access to finance for innovation.
• Low carbon and resilient urban development and connectivity: As Bangkok is a crucial economic driver for Thailand, secondary cities are facing infrastructure challenges due to financial constraints and centralised planning. To prevent urban sprawl and congestion in these emerging areas and consider climate change impacts, enhancing transport infrastructure is key to Thailand’s domestic and regional connectivity, focusing on resilient, low-carbon development and connectivity.
• Sustainable development and protection against natural disasters and climate change: Thailand should address environmental issues due to its long coastlines, fragile agriculture system and susceptibility to extreme weather events. Beyond immediate concerns, climate change presents substantial long-term macroeconomic implications and social costs that include the loss of lives, food insecurity and declines in human capital.
• Enabling institutions: Thailand’s institutions need to be reformed to achieve strong, inclusive and sustainable growth. Fiscal rules and investment bottlenecks are undermining the efficiency of public investment. There are also gaps in accountability and transparency which hinder institutional progress. Hence, it is critical for the country to promote more inclusive, accountable and transparent public services, including state-owned enterprises.
“Thailand can boost economic growth to 5% within 10 years, but it needs effort and reform across many aspects to achieve that goal,” Vashakmadze said.
