Monday, 2 September 2024 – In this webinar, Dr. Kirida Bhaopichitr, Dr. Somchai Jitsuchon, and Richard Yarrow shared their insights on Thailand’s economy under one year of Pheu Thai-led government, discussing the country’s long-term macroeconomic outlook, inequality issues, and the effectiveness and broader implications of the government’s economic policies.
THAILAND STUDIES PROGRAMME WEBINAR
The ISEAS Thailand Studies Programme hosted a Chatham House rule webinar featuring Dr. Kirida Bhaopichitr and Dr. Somchai Jitsuchon from the Thailand Development Research Institute (TDRI), alongside Richard Yarrow from the Mossavar-Rahmani Center for Business and Government at Harvard Kennedy School. The speakers provided valuable insights into recent developments in the Thai economy, drawing the attention of 126 attendees.
The webinar covers the following points
- Over the past year, Thailand’s economy has continued its post-COVID recovery, taking three years to return to pre-pandemic levels, longer than most Southeast Asian countries, due to its heavy dependence on the tourism sector, which was severely impacted by the pandemic.
- Before the pandemic, tourism contributed 20 percent to Thailand’s GDP, with international tourists accounting for 12 percent and domestic tourism 8 percent and the industry is still struggling to reach back to pre-pandemic level. By July 2024, overall tourist spending nearly returned to pre-COVID levels, while Chinese tourist arrivals reached 70 percent of their pre-pandemic numbers.
- Thailand, as a middle-income country, should see annual growth around 3 percent but under the Srettha government, it was only 1.9 percent Growth is expected to reach 2.5 to 3 percent in 2024, driven mainly by private consumption, with export and tourism also showing signs of recovery.
- Thai exports grew by 3.6 percent driven by industrial and agricultural products, with strong performance in the US and Australian markets. In 2024, exports will benefit from rising global electronics stocks, demand from major markets, and trade diversion, though competition from China’s surplus exports remains a concern.
- Government spending has contributed little to growth, as budget disbursement was delayed from October 2023 to May 2024 under the Pheu Thai government, negatively affecting growth prospects. If the Pheu Thai government forms a new cabinet in time and passes the 450-billion-baht digital wallet scheme in the 2025 budget, it could boost domestic consumption and positively impact overall economic growth.
- After multiple delays, the Pheu Thai government proposed an initial cash transfer under the digital wallet scheme for 14.5 million Thais, focusing on those with disabilities or on social welfare. Remaining payouts will depend on funding and the app’s readiness. Experts believe this one-time stimulus offers minimal economic growth and may increase fiscal risks for the Thai government.
- Amid global protectionism and supply chain disruptions, Thailand’s export market share has remained stagnant and is unlikely to see significant growth like Vietnam or Indonesia. Although demand for Thailand’s key exports, such as electronic parts, continues to grow, nearly 60 percent of these products have lost market share.
- The pandemic accelerated the digitalization, and AI brings more business opportunities to Thailand which greatly benefited the digital-enhanced business and establishing an ecosystem and supply chain for digital economy.
- Thai policy rate is the lowest in the Southeast Asia region and remained unchanged at 2.5 percent rate meanwhile Baht is expected slightly strengthen in 2024 and expected to remain stronger than Japan, Indonesia and Philippines.
- Thailand’s K-shaped recovery is expected to persist under Paetongtarn Shinawatra, with weak demand from grassroots and SMEs. The new PM is unlikely to make major cabinet changes, keeping most economic cabinet members in place.
- Former PM Thaksin’s recommendations, emphasizing Thailand’s soft power, making Thailand a hub for global companies, R&D-driven agricultural reforms, outward FDI, and negative income taxes, are expected to influence policy. However, controversial initiatives like new entertainment centres (casinos) and the government’s household debt buy-out face implementation challenges.
- Thaksin’s economic policies prioritize higher growth, shifting between supply-led and demand-led top-down approaches, with limited focus on quality. However, they largely overlook human development and the crucial need for bottom-up economic restructuring, essential for sustainable growth.
- Pheu Thai lacks strong fiscal discipline, relying on GDP growth while planning to lower Personal and Corporate Income Taxes without a clear revenue-raising strategy, which could harm the economy long term. However, they aim to broaden the tax base by formalizing the underground economy and introducing a negative income tax.
- The Pheu Thai government is expected to continue pressuring the Bank of Thailand (BOT) to lower policy rates and expand the money supply. They are also likely to influence the BOT through key appointments, beginning with the board chair in October, followed by the governor next year, and policy board members over the next two years. This could lead to tensions between political interference and the BOT’s longstanding culture of independent, “genuine central banking.”
- Thaksin’s leadership style is expected to return under Paetongtarn, characterized by stricter control and a clear system of rewards and penalties for officials. Decision-making is likely to be faster, contrasting with Prayuth’s tenure.
- Although Srettha’s party did not win a majority, his government has political legitimacy, unlike Prayuth’s, restoring some business stability and gave a boost to the tourism industry that had struggled under Prayuth. While Srettha’s international trips brought less foreign investment than neighbours like Malaysia and Vietnam, they did regain attention from the global business community.
- In his short time in office, Srettha has pursued a more business-focused “Thailand Vision,” replacing the previous government’s “Thailand 4.0” strategy. Key initiatives include a visa waiver program, transforming Thailand into a major aviation hub, and boosting medical tourism.
- Srettha government’s campaign to attract Chinese tourists with a visa waiver program aligns with China’s slower economic growth, boosting Thailand’s tourism industry. As a more affordable and closer destination, Thailand is likely to attract Chinese tourists who might otherwise travel to Europe or North America.
- Thailand’s exports to China saw little growth, while imports from China increased by 50% in nominal value compared to pre-pandemic levels. The main imports are semi-finished intermediate goods, but it is unclear how much of these were re-exported to ASEAN, Europe, or the US, and there is no clear data on the profits Thailand made from refining and re-exporting these goods.
- Manufacturing remains a key part of Thailand’s economy, employing 10-20% of the workforce. However, the sector faces challenges competing with Chinese products on cost and market share, largely due to lower investment compared to regional peers. Additionally, Thailand’s lower tariffs, relative to Malaysia and Indonesia, have driven demand for cheaper Chinese imports in its growing online consumer market.
- With China’s weakening economy, both Chinese and international investors are looking to relocate their investments, seeing Southeast Asia as a potential destination. However, it remains uncertain whether Thailand can fully capitalize on this opportunity. The Srettha government’s response has been to relax regulations on land and property sales, but this has primarily driven up asset prices rather than delivering long-term economic benefits for Thailand.
The audience raised questions about the geopolitical and structural challenges facing Thailand’s manufacturing sector, rising public debt, potential new FTA agreements, the future of the digital wallet initiative, Thailand’s bid for OECD membership, and the growing influence of China in the Thai economy.