The Thai Economy

The kingdom weathered economic setbacks and political unrest before, earning it the name “Teflon Thailand.” By 2019 the Thai economy was not upbeat. Latest data showed that due to slow growth in exports and tourism, Thailand's GDP increased by 2.8 percent in the first quarter of 2019, marking the lowest rate of growth since the fourth quarter of 2014. Under such circumstances, the government was bound to come under pressure to boost the economy and fulfill his promises, including that of improving the state's economic situation and raising the minimum wage.

Economists warned in February 2014 of slower economic growth in Thailand while the country is gripped by political unrest. The US ratings agency Fitch warned a prolonged political standoff could have a lasting negative impact on Thailand’s economic performance and financial stability. In its report, Fitch pointed to a contraction in manufacturing, sharply lower retail sales growth, and consumer and business confidence at the lowest levels since the disastrous floods of late 2011. Thailand’s caretaker government was under tight financial pressure to make payments to rice farmers, who are owed more than $3 billion under a controversial rice pledging scheme. The government struggled to raise the funds and had been unable to secure funding from banks.

The Thai economy is export-dependent, with exports of goods and services equivalent to nearly 70% of GDP in 2010. Export levels reached 63% of GDP in 2012, despite its lower than expected growth of only 3.2%. This is due to supply constraints from flood damage during the first half combined with falling key agricultural prices and volumes (e.g., rubber and rice) and weak global demand.

Tourism was especially hard hit in the capital Bangkok where the government instituted a state of emergency as anti-government protests moved to block key intersections in the city. More than 45 countries issued travel alerts, and tourism authorities estimated losses for January 2014 alone at some $685 million. The longer the political unrest continued, the longer it would take for the country to regain its tourist and business-friendly image.

On June 16, 2014 Thailand's military government ended a rice price-support scheme, put in place under the former civilian government, as investigations continue into widespread corruption and losses of billions of dollars from the program. The policy change came as Thailand is predicted to return as the world's largest rice exporter, eclipsing the current market leader, India. Under the rice price-support scheme of former Prime Minister Yingluck Shinawatra, the government paid farmers 50 percent more than world market prices. The government believed the plan could make Thailand, then the world's largest rice exporter, a price leader and force up global rice prices.

Thailand's recovery from the 1997-1998 Asian financial crisis (which brought a double-digit drop in GDP) relied largely on external demand from the United States and other foreign markets. From 2001-2006, the administration of former Prime Minister Thaksin embraced a "dual track" economic policy that combined domestic stimulus programs with Thailand's traditional promotion of open markets and foreign investment. Real GDP growth strengthened sharply from 2.2% in 2001 to 7.1% in 2003 and 6.3% in 2004. In 2005-2007, economic expansion moderated, averaging 4.9% real GDP growth, due to domestic political uncertainty, rising violence in Thailand's three southernmost provinces, and repercussions from the devastating Indian Ocean tsunami of 2004. Thailand's economy in 2007 relied heavily on resilient export growth (at an 18.2% annual rate), particularly in the automobile, petrochemicals, and electronics sectors.

Political uncertainty and the global financial crisis in 2008 weakened Thailand’s economic growth by reducing domestic and international demand for both its goods and services (including tourism). Due to minimum exposure to toxic assets, Thai banks experienced limited direct impact from the global financial crisis. Nonetheless, Thai economic growth slowed to 2.5% in 2008, with fourth-quarter growth dropping below zero. In 2009, the contraction continued, with an average year-on-year economic growth of minus 2.3% in 2009.

The Thai economy posted a recovery in 2010, growing at 7.8% on the strength of its exports, which surged by 28%, in spite of the March-May political protests that took place in Bangkok. Going into 2011, the government anticipated moderate growth in the range of 3%-5%. The economy achieved 3.1% growth over the first three quarters of 2011 despite supply chain disruptions caused by Japan's tsunami and an overall slowdown in the global economy. October and November flooding in Thailand's central region, however, inundated several key industrial estates on Bangkok’s periphery and halted economic activity in affected areas. Industrial production bore the brunt of flood damages, with manufacturing output declining 36% year-on-year for October. As a result, the Thai economy was expected to achieve only 1.5% annual growth for 2011. Unemployment, which had hovered around 1% since 2010, was expected to reach as high as 2.3% in 2011's fourth quarter as a direct result of flooding. Core and headline inflation as of November 2011 were running at 2.9% and 4.19%, respectively. The Bank of Thailand has forecast an economic recovery in 2012 with GDP growth of 4.8%, driven by domestic demand largely in the form of government spending and investment on flood reconstruction. Estimates for 2012 GDP growth range significantly: the Economist Intelligence Unit (EIU) has forecast 3.8% and the World Bank 4%, and in November 2011 Deputy Prime Minister Kittirat estimated that growth could reach as high as 7%.

The Thai Government welcomes foreign investment, and investors who are willing to meet certain requirements can apply for special investment privileges through the Board of Investment. U.S. investors may qualify for additional privileges under the Treaty of Amity and Economic Relations.

The organized labor movement remains weak and divided in Thailand. Less than 2% of the total work force is unionized, although nearly 10% of industrial workers and more than 59% of state enterprise workers are unionized. In 2009, efforts to restructure the State Railway authority met resistance from the powerful railways union, including a short strike that halted trains nationwide, showing that organized labor still has potential political clout. As a result of the global financial crisis and business restructuring, employers hired large numbers of short-term contract workers. While employers claimed to have done this in order to maintain business flexibility for greater competitiveness during financially uncertain times, labor advocates viewed these actions as reducing job security and attempts to weaken the organized labor movement.

Roughly 40% of Thailand's labor force is employed in agriculture, although agriculture accounts for only 12% of GDP (data based on the Thai National Statistics Office). Rice is the country's most important crop; by 2012 Thailand was the largest exporter in the world rice market. Other agricultural commodities produced in significant amounts include fish and fishery products, tapioca, rubber, corn, and sugar. Exports of processed foods such as canned tuna, canned pineapples, and frozen shrimp are also significant.

Thailand's increasingly diversified manufacturing sector is the largest contributor to growth. Industries registering rapid increases in production have included computers and electronics, furniture, wood products, canned food, toys, plastic products, gems, and jewelry. High-technology products such as integrated circuits and parts, hard disc drives, electrical appliances, vehicles, and vehicle parts are now leading Thailand's growth in exports. With stronger exports and a rise in inflationary pressure, the Bank of Thailand started to tighten its monetary policy in mid-July 2010 after having followed a low interest rate policy since April 2009. Large surpluses in both the current and capital accounts contributed to the Thai baht's appreciation relative to the dollar throughout 2009 and 2010. Machinery and parts, vehicles, electronic integrated circuits, chemicals, crude oil and fuels, and iron and steel are among Thailand's principal imports.

Through 2010, the United States was Thailand's third-largest single-country export market after China and Japan, and the third-largest supplier after Japan and China. Thailand's traditional major markets have been the United States, Japan, Europe, and ASEAN member countries (Singapore, Malaysia, Indonesia, the Philippines, and Vietnam). Growing export markets include China, Hong Kong, Australia, the Middle East, South Africa, and India. Thailand is a member of the World Trade Organization (WTO) and the Cairns Group of agricultural exporters.

Tourism contributed significantly to the Thai economy (approximately 6%). The tourism industry was on track for a record year in 2011 before the October-November flooding, the traditional start of the industry’s peak season. International tourist arrivals declined significantly during both months, but remained up by 15% year-on-year through October.

Bangkok and its environs are the most prosperous part of Thailand, and the seasonally barren northeast is the poorest. An overriding concern of successive Thai governments has been to reduce these regional income differentials, which have been exacerbated by rapid economic growth in and around Bangkok. The government has tried to stimulate provincial economic growth with programs such as the Eastern Seaboard project and various populist and crop price support policies.

Although the economy demonstrated moderate positive growth in recent years, future performance depends on moving up on the value-added ladder away from low-wage industries where regional competition is growing. Key reforms are needed to open the financial sector; improve the foreign investment climate, including updating telecommunications capabilities; and stimulate domestic investment and consumption to balance reliance on exports. Logistics networks and electricity generation increasingly run the risk of bottlenecks and may pose a challenge to growth. Thailand's relative shortage of engineers and skilled technical personnel may limit its future technological creativity and productivity, even as the government is pushing for an increase in the proportion that creative industries contribute to GDP from 12% to 20% by 2015.