11 July 2024
The deceleration in the growth of the Thai economy in the third quarter has raised questions on whether these were symptoms of the country staring at an economic crisis.

Gross domestic product in the third quarter grew by only 1.5 per cent. Most of the leading economists do not see any risk, but politicians in the ruling Pheu Thai Party and its supporters are ringing alarm bells.

Economists argue that the current slowdown in growth is nothing like the crisis when the gross domestic product contracted by 6.1 per cent in the aftermath of the COVID pandemic in 2020, or the 1998 “Tom Yum” crisis when the economy shrank by 7.6 per cent.

Most economists, however, warn that the government must save money to cope with harder times in future.

Those in the economic crisis bandwagon have a vested interest to justify the government’s controversial digital wallet scheme that has generally been widely criticized. The government plans to borrow 500 billion baht in order to hand out 10,000 baht per person to 50 million people aged 16 years and above for spending within a six-month period. The government and its supporters argue that the economy needs a jump-start measure by boosting consumption. Opponents of the scheme counter that taxpayers’ money could be used wisely and it should be allocated for productive investment, not for short-term consumption.

“It is open for interpretation whether a short-term consumption stimulus is needed,” says Sakon Varanyuwatana, a former dean at Thammasat University’s Faculty of Economics.

The government is holding consultations with the Council of State, the government’s legal advisor, on whether it should propose to Parliament a bill for borrowing 500 billion baht to finance the digital wallet scheme.

Why is the economy underperforming?

The slow growth of the Thai economy for many years  also suggests that the economy could be in deep trouble. Thailand is emerging as the sick country of ASEAN where most of its members achieve much higher growth. For example, in the third quarter, Malaysia’s economy grew by 3.3 per cent, Philippines by 5.9 per cent, Vietnam 5.3 per cent and Indonesia 4.9 per cent .

Piti Srisangnam, an economic lecturer at Chulalongkorn University suggests that Thailand focus on human resources development, tackling corruption and heralding a green revolution.

The country needs to pay more attention to a green economy approach in order to avoid trade restrictions imposed by major export markets such as the European Union, he warned. Corruption remains widespread and it hurts economic development, he lamented.

Poor human resource development has contributed to the widening gap between the rich and the poor, he argued. Thailand has been facing labor shortages in low- and high-skill fields. The country relies very much on cheap unskilled or semi-skilled labor from neighboring countries. At the same time, Thais seek to work in foreign countries where they could earn much more, such as in Taiwan, South Korea and Israel. Despite the risk of war, around 30,000 Thais worked on farms in Israel before Hamas attacked Israel on October 7. Despite the ongoing war between Israel and Hamas, about 20,000 Thai workers have remained in Israel.

Thailand’s unemployment rate was low at 0.99% year on year in the third quarter this year. However, the quasi-unemployment rate rose 24.9 per cent year on year to 2.3 million persons, according to the National Economic and Social Development Council (NESDC). Quasi-unemployment includes those who work 20 hours or less per week in the farm sector and those who work 24 hours or less per week in the non-farm sector.

Losing  competitiveness 

Thailand’s export market share since 2011 has been languishing at 1.4% while Vietnam’s export market share increased from 0.5  per cent to almost 2 per cent, said Kobsidthi Silpachai, head of capital markets research at Kasikornbank. “This suggests Thailand is losing competitiveness in the global market,” he pointed out.

The coup in 2014 that brought a military-backed government to power has also been blamed by other critics for Thailand struggling in the export market as the European Union suspended free-trade negotiations with Thailand while Vietnam has been successful in making trade deals with both the EU and the United States.

Impact of geopolitics

Impact of wars in Ukraine, Middle East and tension between the United States and China also have negatively impacted the global economy and the Thai economy as well.

Vietnam and Indonesia have benefited greatly from the trade tensions between the United States and China since 2018 as some foreign direct investment (FDI)  flows out of China. Thailand has received some FDI from China, such as electric vehicle makers moving some of their production plants to Thailand in recent years.

A glimmer of hope

Thailand’s exports in October unexpectedly rose 8 per cent, valued at US$23.6 billion, bringing hope that the economy would not be as bad as expected. The export recovery over the past three months has been like a breath of fresh air following contraction in the previous seven months for this key cog in the country’s economic wheel. Exports grew 2.6 per cent and 2.1 per cent in August and September respectively. Overall, exports in the first 10 months contracted by 2.7 per cent, valued at $236.6 billion.

Following the recent recovery, the Commerce Ministry has predicted overall exports may contract by 1 per cent this year, better than many expected. The ministry also projects export growth at 2 per cent next year.

An expansion of exports together with a steady recovery of tourism and private consumption could boost economic growth next year. The NESDC has forecast economic growth at 2.5 per cent this year and 2.7 to 3.7 per cent next year.

By Thai PBS World’s Business Desk