Barriers to growth stay despite 'Prayuthnomics' warn CIMB economists

The economic policies advocated by Prime Minister General Prayuth Chan-Ocha aim to stimulate growth and build a strong foundation to steer the country out of the “middle-income trap” and harmonise Thai society. Thailand needs higher investment by the state, including a greater role for specialised financial institutions (state-owned banks), more momentum from the private sector towards a digital economy, and reform of the tax system and the bureaucracy. 

Amonthep Chawla, head of economic research at CIMB Thai, said the government had set forth “three roses”, which he compared to the three arrows of Japan’s Abenomics. Prayuthnomics wants to stimulate the Thai fiscal, industrial and social sectors. However, the speed of economic growth remains dependent on public and private investment, which demands a strong workforce.

The proportion of working-age Thais is 71-72 per cent, a ratio that is expected to decline in future years. Therefore, the country needs to think about increasing the productivity of the existing workforce, he said.

Investment leads to growth of gross domestic product and consumption. However, the purchasing power of Thais has been declining because of their high debt burdens in the past few years. Consumption represents 50 per cent of GDP, but high household debt, aggravated by the expected upward trend of interest rates, will put pressure on consumption, he said.

He noted that the government had given importance to industrial reform, focusing on advanced technology to boost the standards of Thai industry, because Thailand is part of the global supply chain. Unless it makes high-technology products, Thailand will not gain advantages from the global supply chain once key economies achieve full recovery.

For example, Thailand will be unable to benefit much from exporting rubber to China, because China imports Thai rubber for domestic consumption, not for manufacturing products to export to other countries. This means Thailand cannot increase the value of this particular export by adding to the global supply chain, Amonthep said.

The economist expects Thai export growth to remain in single digits next year, at 4 per cent. However, as public investment leads to private investment, imports are expected to rise sharply, resulting in a current-account deficit. Meanwhile, the government budget is projected to be in deficit as well to support economic recovery.

“Usually, economists warn that these twin deficits could cause volatility in the economy and the financial market. But Thailand next year could face ‘quadruple deficits’,” he said, in the state budget, the current account, the capital account and the labour force.

CIMB Thai expects “Prayuthnomics” will help bring GDP in 2015 back to growth of 4.5 per cent. This year, it predicts growth of 1.5 per cent.