Thailand’s economy remains fragile due to failure to restructure: SCB study

Speaking during the release of the bank's economic outlook for the first quarter of this year on Thursday, Somprawin Manprasert pointed out that while the country's economy appeared to be doing well on the surface, it was extremely fragile and weak in terms of long-term growth.

"We have all known for a long time that Thailand has a major problem with its economic structure, including its manufacturing industry. However, the issue has become extremely serious as it has already harmed the country's competitiveness in the transition to digital technology and sustainability," he said.

Citing the kingdom's gross domestic product, which continues to fall after each crisis, Somparwin noted that the problem was Thailand's inability to integrate new innovations and technologies into the manufacturing sector.

Furthermore, given the government's inability to address long-term issues and failure to implement the right solutions for the country's economy, he said he was concerned that Thailand would be unable to engage in and benefit from the new generation of global supply chains.

He warned that if the scenario continued without implementing new national policies and actions, Thailand would fall into the “Lost Decade”, and he was unsure how long it would take for Thailand to recover.

The Lost Decade refers to a period of economic stagnation in Japan in the 1990s that is having an impact on the country's economy even today.

According to the SCB EIC recent study, the level of Thailand's manufacturing efficiency in the long run was reduced from 3% in the previous year to 2.7% this year.

Pranida Syamananda, head of industry analysis at the SCB EIC, explained that Thailand was currently facing structural issues related to both demand and supply.

"Aside from poor productivity, our manufacturing has to face various challenges from climate change and scarcity of workforce on the demand side while confronting fierce competition in the global market and threats from cheap products in the domestic market," she said.

She suggested that Thai manufacturers follow the four key trends that were shaping global supply chains. The four trends are: digitisation and AI, supply chain resilience, sustainability and ESG (environment, society, governance), and health consciousness. She urged the government to help those manufacturers by offering tax incentives, providing access to financial loans, and easing some regulations to encourage change.

Recognising that Thailand may be late in developing new technologies on its own, Pranida urged the government and manufacturers to seek out the right partners and alliances to help the country move forward.

"If Thailand can manage to transform and align with global trends, Thailand would certainly integrate with the global supply chain and sustainably secure its growth," she said.

Somparwin highlighted the country's short-term economic slowdown caused by low exports and high household debt, leading to decreased consumption.

He agreed with the government to implement stimulus measures to help the country's economy. However, rather than focusing on increasing domestic consumption, he suggested that the government take steps that would encourage foreign direct investment.

"Using monetary and fiscal policy tools to stimulate the economy will not solve the country's structural problems, but it would at least restore sentiment and confidence in Thailand's ability to move forward,” he said.

Additionally, he recommended that the government consider using stimulus policies to sustain the country's long-term growth.

Looking ahead, Thailand would face significant structural challenges in the manufacturing sector, he said, and added that while manufacturing is expected to recover in 2024 due to strong domestic and external demand for consumer goods, industries continue to rely heavily on traditional supply chains. Despite shifting geopolitical landscapes, the Thai economy is inextricably linked to China, particularly the Chinese manufacturing supply chain.

Aside from that, he noted that sectoral capabilities to adapt to modern supply chains and changing global demand have been slow. These challenges have hampered Thailand's export competitiveness, as evidenced by its stagnant share of global exports over the last decade.

"Therefore, Thailand's manufacturing sector must rapidly adapt to emerging sustainability trends, improve technological development, and strengthen supply chain resiliency. These efforts are critical for Thailand to participate and strengthen its position in the modern global supply chain," he said.

According to the latest SCB EIC outlook, Thailand's growth forecast for 2024 has been revised down to 2.7% from 3% due to weak manufacturing, slow structural reforms, and high household debt.

Despite the overall outlook of a steady rebound due to promising tourism prospects, strong service sector performance, and a resumption of demand-driven economic activities driven by exports and private investment, Thailand's economy may experience further contraction in public spending in the first quarter of this year due to the delayed enactment of the 2024 budget bill.

Furthermore, inventory accumulation is expected to remain high, posing an additional challenge to the overall economic outlook.

Also, despite several months of negative inflation, SCB EIC assesses that Thailand has yet to enter a recession.

"We expect inflation to return to positive territory in May, following the withdrawal of energy subsidies and the subsequent rise in domestic oil prices. Aside from that, upside risks remain from global supply chain disruption exacerbated by conflicts in the Red Sea, the climate crisis, and export controls imposed by some trading partners, which could result in price increases for agricultural products such as rice and sugar.
The study expects headline inflation to return to the target range in the second half of the year. Thailand's headline and core inflation rates are expected to be 0.8% and 0.6% in 2024, respectively," according to SCB EIC.