Many Economic Challenges Remain for Thailand

“Domestically, over 10 years of political volatility has left a serious mark on Thailand’s competitiveness,” said Ian Pascoe, managing partner of Grant Thornton . “A consistent lack of investment with no cohesive long-term strategy and action has taken its toll. In addition to this, stagnated worldwide economic growth will place more pressure on Thailand given its reliance on exports of goods and services which in 2013 were 74 per cent of GDP.

Unemployment remains low at around 1 per cent, increasing upward pressure on wages, which rose by approximately 50 per cent in the decade to 2010. However, productivity has not increased, resulting in a decline in the competitiveness of the Thai workforce and an increase in costs for businesses.”The report indicates that rising energy costs are also a problem across the region (49 per cent) for Thai businesses, especially when compared to the global average (34 per cent). This highlights business concern around the potential removal of massive fuel subsidies which governments have put in place to keep a lid on inflation and win votes.

More than half of Thai business leaders also cite a lack of skilled workers (52 per cent) as a concern, well above the regional average (39 per cent). This comes as no surprise in a country with very low unemployment and an ageing population, but remains a real concern for long-term growth prospects.Investment is expected to contract for the second straight year in 2014 (-2.3 per cent). However, it is expected to pick up again in 2015 as the new government speeds up public investment in infrastructure and streamlines foreign-investment approvals reportedly worth some US$22 billion. An investment of US$40 billion has also been promised to update Thailand’s transport infrastructure.

“Thailand needs to sustain 4 per cent GDP growth to remain at a ’neutral growth’,” Poscoe said.

In 2013, GDP growth was 1.8 per cent. In 2014 the growth forecast has been recently been revised down to 1 per cent by the National Economic and Social Development Board, and the International Monetary Fund forecast for 2015 is 4.1 per cent (below the Asean growth at 5 per cent) and 5.4 per cent in the period 2016-18.

“Given the number of times these figures have been revised down in the past, coupled with the slowdown in growth in major trading partners and the lack of sustained action of policies that encourage foreign investment, it looks likely that Thailand’s growth prospects will remain neutral at best through the next 24 months,” he added.

Aside from political concerns, the demographic make-up of Thailand remains a key concern. As in many East Asia economies, the prevailing fertility rate (1.6) is well below the replacement rate (2.1), which will further constrict the supply of workers and could seriously dampen growth prospects.

“As such, it is imperative that there is an increase in productivity to sustain any level of growth, something we have currently yet to see,” he said.

Sub-par growth in the global economy also poses a risk to economic growth in Thailand. The IMF recently lowered its growth forecasts for 2014 and 2015, warning of persistent weakness in the Eurozone, the end of the emerging market commodity boom as China slows and further difficulties in Japan which has just officially entered a technical recession.