New Thai Government Must Choose Between 'Short-Term Handouts' and Long-Term Growth, Economists Warn

 

 

Leading economists call for bold changes in agriculture, energy and governance as Thailand faces 1.5% GDP growth amid mounting debt concerns.

 

Thailand's incoming government must abandon populist handout policies and implement radical structural reforms if the country is to escape its low-growth trap, leading economists warned at a major economic forum on Tuesday.

Speaking at the KKP Year Ahead 2026 seminar, top economic advisers painted a sobering picture of Thailand's economic predicament and outlined an urgent reform agenda that prioritises productivity gains and market liberalisation over short-term stimulus measures.

 

 

 

Call for Transformative Economic Policies

Dr Supavud Saicheua, chairman of the National Economic and Social Development Council (NESDC) and adviser to Kiatnakin Phatra Financial Group (KKP), delivered a stark assessment of current political discourse, noting that most political parties have failed to address Thailand's fundamental economic challenges.

 

"I must admit the truth: most policies will not help restructure the economy that much. Policies are mostly about pleasing the people rather than helping with transformation," Dr Supavud said candidly. "What I want to invite is this: I think we are at a point where we must help each other take action. We need to help solve problems together."

 

Dr Pipat Luengnaruemitchai, chief economist at Kiatnakin Phatra Securities, echoed this sentiment, emphasising that Thailand's problems cannot be solved through conventional monetary or fiscal stimulus alone.

 

 

"The policy space in various dimensions — whether monetary policy or fiscal policy — is tightening. We can no longer solve economic problems through short-term stimulus alone," Dr Pipat stated. "Short-term stimulus policies may play a role in buying time whilst we discuss and present policies to genuinely address the structural problems we're facing."

 

 

 

 

Six Pillars for Economic Transformation

Dr Supavud outlined six critical reform areas that Thailand's new government must address:

 

1. Agricultural Transformation: Shift production from low-value carbohydrates like rice to high-value proteins and functional foods.

 

"The whole world is ageing, and we all know that when we age, we eat less carbohydrates and more protein. Our country must adapt accordingly," he explained.

 

2. Renewable Energy Acceleration: Liberalise direct power purchase agreements (PPAs) across all industries rather than limiting them to data centres. Thailand currently utilises only 5 gigawatts of solar capacity despite having potential for 300 GW.

 

"We should quickly open up the ability for private parties to buy and sell electricity using the Electricity Generating Authority of Thailand's power lines," Dr Supavud urged.

 

3. Railway Infrastructure Activation: Pass regulations allowing private companies to operate tourism and logistics services on state-owned tracks, which are currently utilised at only 6-10% capacity.

 

4. Semiconductor Industry Development: Focus on the OSAT (Outsourced Assembly and Testing) segment to carve out a strategic niche in the global chip supply chain.

 

5. Food-Tourism Synergy: Leverage Thailand's recent recognition as "Best Country for Food 2025" to create powerful synergies between culinary excellence and tourism offerings.

 

6. OECD Membership: Aggressively pursue full membership in the Organisation for Economic Co-operation and Development. According to research by the Thailand Development Research Institute (TDRI), OECD membership could boost annual GDP growth by 1.6%.

 

 

 

 

Structural Vulnerabilities Deepen

Thailand's economic growth has steadily declined from an average of 5% to just 2% currently, with projections of 1.5-1.7% for 2026 against a potential growth rate of 2.7%.

 

The country faces multiple structural headwinds:

 

Fading Industrial Competitiveness: Thailand's three largest industries — automotive, petrochemicals, and electronics — are losing ground to Chinese imports. Despite positive export headline figures, the Manufacturing Production Index has been in continuous decline.

 

Demographic Drag: For the past two years, deaths have outnumbered births in Thailand, leading to population decline that directly curtails domestic demand.

 

Financial Sector Constraints: Banks have become increasingly risk-averse due to asset quality concerns, with SME credit remaining negative for 13 consecutive quarters (36 months).

 

Chronically Overvalued Baht: On a Nominal Effective Exchange Rate basis, the Thai baht is at its strongest level since the 1997 Asian Financial Crisis.

 

"Over the past 10 years, the baht has strengthened continuously. This has been going on for more than 10 years, not just the past two," Dr Supavud noted.

 

 

 

 

Geopolitical Pressures Mount

The economic challenges are compounded by Thailand's precarious position in US-China tensions.

 

Over the past decade, Thailand's export dependency on the United States has surged from 10.5% to 23.7%, whilst import dependency on China has increased from 16% to over 30%.

 

Dr Supavud expressed scepticism about hopes that a US Supreme Court ruling against President Trump's tariffs would resolve trade tensions.

 

"Don't hope that the Supreme Court decision will solve the problem, because Trump has done many things. If he wants to collect taxes from Thailand, he will find a way," he warned.

 

 

 

 

Global Context: Divergent Growth Patterns

Andrew Tilton, chief Asia Pacific economist at Goldman Sachs Global Investment Research, provided a more optimistic global outlook, forecasting 2.6% US growth in 2026 versus consensus expectations of 2.0%.

 

"We are relatively optimistic about global growth in 2026," Tilton said, citing four key factors: reduced tariff uncertainty, surging AI-related investment, easier financial conditions, and supportive fiscal policy.

 

However, Tilton noted that whilst AI investment currently represents only 1% of US GDP — not excessive by historical standards — market valuations have added over US$15 trillion in market capitalisation, representing "a pretty optimistic scenario about how much value will be created by AI."

 

On China, Tilton characterised the economy as "two-speed": a strong manufacturing and export sector benefiting from 20-40% cost advantages, contrasted with a weak domestic economy suffering from a housing downturn now in its fifth year, with new construction down 80% from peak levels.

 

 

 

 

Investment Implications

Dr Pipat advised investors to diversify portfolios and increasingly look overseas given Thailand's challenging growth trajectory.

 

For domestic investments, he recommended defensive sectors including banking, telecommunications, tourism, and healthcare that don't rely heavily on economic expansion.

 

"Today, we see that the global economic trend and Thailand's economic trend are going in completely different directions," Dr Pipat observed. "Overseas, we still believe there is strength, new investments, and new investment alternatives emerging, whilst in Thailand, the trend of economic growth continues to decline."

 

 

 

Credit Rating Risks

Both economists warned of the risk of a sovereign credit rating downgrade if Thailand continues with deficit-spending populist policies without corresponding growth.

 

Dr Supavud predicted this could occur mid-year if economic performance disappoints.

 

"If we continue like this, we will be downgraded by rating agencies because the government's credibility will deteriorate significantly," he cautioned. "Eventually, there will be problems as the government begins to pressure the Bank of Thailand to print money to support the government."

 

 

 

Time for Decisive Action

The seminar concluded with a unified message: Thailand stands at a critical juncture where decisive structural reform is not optional but essential.

 

Kulanan Tsanthaiwo, chairperson of Private Client Business Group at KKP, emphasised that uncertainty can be transformed into opportunity through systematic planning.

 

"In the world of investment, uncertainty and risk are sources of returns, especially for those ready to seize opportunities," she said. "Precision is the heart of analysis and decision-making."

 

Dr Supavud issued a final challenge to both political parties and citizens: "I want to see political parties honestly tell people that everyone must adapt and change. But it's not there. There's nothing like that at all."

 

The stark warning from Thailand's economic leadership comes as the country prepares for elections, with economists making clear that the choice between short-term populism and painful but necessary reform will determine whether Thailand can break free from its low-growth trajectory or face continued economic stagnation and mounting debt pressures.