IMF warns Thailand faces ageing risk as Asia hits turning point

Thailand faces mounting pressure from a shrinking workforce and rapidly ageing population as the economic model that powered Asia’s rise over the past 35 years loses momentum, with productivity growth and artificial intelligence emerging as critical factors for future growth, according to a new International Monetary Fund (IMF) study.

The IMF will present Shaping the Future of Asia: Opportunities and Challenges at the 2026 Annual Meetings of the IMF and World Bank Group in Bangkok on October 12.

IMF Managing Director Kristalina Georgieva is scheduled to deliver opening remarks at the launch, while Krishna Srinivasan, director of the IMF’s Asia and Pacific Department, will present the book’s main findings.

Edited by Rahul Anand, Thomas Helbling and Srinivasan, the 15-chapter publication builds on discussions at the “Asia in 2050” conference held in Bangkok in March.

The study argues that Asia-Pacific is reaching a turning point as the forces behind its economic transformation, including abundant labour, manufacturing exports and expanding global trade, become less powerful.

Asia’s 35-year economic transformation

The region has undergone a dramatic economic transformation since 1990.

Per-capita income more than doubled between 1990 and 2023, while the share of people living in extreme poverty fell from more than 25% to below 5%.

Asia’s contribution to global economic growth rose from about one-quarter in the 1990s to around two-thirds today, while the region now accounts for close to 40% of world trade.

A central driver was structural transformation, as workers moved from low-productivity agriculture into higher-productivity manufacturing and services.

China provides one of the clearest examples, with agriculture’s share of employment falling from about 60% in the late 1980s to below 25% by 2020.

Thailand’s Eastern Seaboard is highlighted as an example of targeted foreign direct investment that brought capital and technology into the economy and helped build regional supply chains, alongside Penang in Malaysia.

High investment delivering weaker returns

The IMF warns, however, that the traditional growth model has been weakening for years.

Productivity growth has slowed across much of Asia since the global financial crisis, while world goods trade has lost momentum and manufacturing has peaked as a share of economic activity in several economies.

Investment remains high, at about 27% of regional GDP in 2024, well above levels in Europe and the United States.

Yet returns on capital have weakened, indicating that investment is not always flowing to the most productive companies.

The IMF says the problem is less a shortage of financing than how capital is allocated.

Financial systems in much of Asia remain heavily dependent on banks, while capital markets are relatively shallow and concentrated among large companies and state-owned enterprises. Smaller businesses often remain dependent on their own funds or bank credit.

The IMF recommends deeper capital markets, simpler listing procedures, stronger corporate governance and greater participation by institutional investors, together with less state intervention that distorts market pricing or credit allocation.

Thailand already in ‘post-dividend’ group

For Thailand, one of the most serious long-term challenges is demographics.

Asia-Pacific’s fertility rate has fallen from about six children per woman in the mid-1960s to about 1.6 today, well below the replacement rate of 2.1.

At the same time, average life expectancy has risen from about 49 years to around 74.

The proportion of people aged 65 and over is projected to rise from around 11% in 2025 to about 20% by 2050, while the old-age dependency ratio is expected to more than double by the middle of the century.

The IMF divides regional economies into three demographic groups.

Early-dividend economies still have working-age populations growing faster than their overall populations. Late-dividend economies continue to gain workers, although at a slower pace.

Post-dividend economies are already seeing their working-age populations shrink.

Thailand is in the post-dividend group alongside Japan, South Korea and China.

The report estimates that working-age populations in post-dividend economies could fall by around one-quarter by 2050, accounting for more than one-third of the decline in the global workforce over the period.

Thailand is among economies facing the danger of becoming old before reaching the income levels of advanced economies.

By contrast, India, Indonesia, Malaysia and the Philippines still have expanding labour forces, shifting part of Asia’s future labour centre away from East Asia towards South and Southeast Asia.

More workers needed as population ages

The IMF recommends policies aimed at raising labour-force participation to offset the demographic drag.

Options include extending working lives, improving digital skills, providing more flexible employment suitable for older workers and reducing barriers preventing women from joining or remaining in the workforce.

Affordable childcare and more balanced parental-leave policies could also help narrow gender gaps in employment.

Population ageing will meanwhile increase pressure on government budgets through pensions and healthcare.

Public pension spending is already significant in parts of East Asia and is expected to increase further as populations age.

Healthcare costs could rise even faster because expenditure is driven not only by demographics but also by rising treatment costs.

Thailand is among the economies expected to face significant increases in age-related healthcare spending.

At the same time, the report points to Thailand as an example of how universal health coverage can be expanded while controlling costs.

Health reforms introduced in the 2000s helped broaden access to healthcare and coincided with improvements in life expectancy and infant mortality.

The next challenge is pensions, particularly improving coverage for informal and part-time workers while maintaining fiscal sustainability.

AI could help offset shrinking workforce

Artificial intelligence could become one of the most important variables determining whether Asia can offset the economic effects of ageing.

IMF modelling suggests widespread AI adoption could lift annual growth by about 0.2 to 0.8 percentage point in emerging market and developing economies in Asia, and by about 0.5 to 1 percentage point in advanced regional economies.

However, the benefits are unlikely to arrive evenly.

Advanced economies with strong digital infrastructure, highly skilled workers and large capital stocks are better positioned to deploy AI quickly.

IMF research identifies economies such as Japan and Singapore among those better prepared for rapid adoption, while emerging markets face longer transition periods.

Thailand is in an intermediate position.

Model simulations suggest economy-wide AI adoption at scale in emerging economies such as Thailand could lag advanced Asia by one or two decades, depending on technological development, capital availability and structural reforms.

The IMF stresses that such dates are scenarios rather than precise forecasts.

This creates a potential timing problem for Thailand because its labour force is already shrinking while the full productivity gains from AI could take years to materialise.

Global AI investment could also increase demand for capital and push borrowing costs higher, placing additional pressure on emerging economies before they can fully adopt the technology.

AI gains could widen inequality

Technology alone will not solve the demographic challenge.

The IMF warns that AI could widen inequality because highly skilled workers are more likely to benefit from technologies that complement their abilities, while lower and middle-skilled workers face greater displacement risks.

The shift towards more capital-intensive production could also benefit older households that already own financial assets more than younger people who depend largely on wages.

Structural reforms therefore need to accompany AI adoption, including investment in education, reskilling, digital infrastructure and labour-market policies.

Thailand does have strengths on which to build.

Its digital-payment infrastructure, including PromptPay and links with Singapore’s PayNow system, has helped reduce transaction costs and broaden access to digital financial services.

The country has also developed public digital infrastructure including identity and government data-exchange systems.

Regional trade offers another source of growth

The IMF sees deeper regional integration as another major opportunity.

Asia-Pacific accounts for more than one-third of global trade, with about half of that trade taking place within the region.

Yet trade in final goods between regional economies remains below 30%, compared with around 60% in Europe and North America.

Trade within the Association of Southeast Asian Nations also accounts for less than one-quarter of the bloc’s total trade, leaving significant room for closer integration.

IMF modelling suggests that deeper, enforceable trade agreements, particularly measures reducing non-tariff barriers, could raise the region’s real GDP by about 1.8% in the long term.

This would be equivalent to adding roughly 0.1 to 0.3 percentage point to annual growth.

IMF urges caution over industrial policy

Governments across Asia have increasingly returned to industrial policies aimed at supporting selected sectors.

The IMF finds that domestic subsidies have become a major tool, with around 80% of industrial-policy measures focused on manufacturing and industrial goods rather than services.

However, the study warns that the benefits can fade within a few years.

Subsidies tend to strengthen competitiveness most effectively in products where an economy already has an advantage, while import restrictions generally produce only temporary gains.

The IMF therefore recommends that industrial policies be used selectively, with clear objectives and defined end dates.

Bangkok among cities exposed to climate risks

Climate change adds another layer of pressure.

Asia is both a major greenhouse-gas emitter because of its dependence on coal and one of the regions most vulnerable to climate-related damage.

The report points to densely populated coastal cities including Bangkok and Ho Chi Minh City as being exposed to rising sea levels.

Changing monsoon patterns and extreme heat also threaten agriculture and labour productivity.

At the same time, the transition to cleaner energy could create new investment opportunities in renewable power, energy-efficient buildings and electric vehicles.

Financing remains a major constraint, particularly for economies with limited fiscal space and high borrowing costs.

Productivity becomes decisive for Thailand

The IMF’s central message is that Asia cannot rely on the economic formula that delivered its previous decades of growth.

Population ageing could reduce regional annual growth by around 0.3 percentage point by 2050, while AI and related technologies could add between 0.2 and 1 percentage point if productivity gains are fully realised.

Deeper trade integration could provide a further boost.

For Thailand, the stakes are particularly high.

A rapidly shrinking workforce means the country has less time to raise productivity, improve skills, deepen its capital markets and adopt new technologies before demographic pressures become more severe.

The question for the next 25 years is therefore not simply how much Thailand invests, but how quickly it can turn capital, technology and a smaller workforce into higher productivity and income.

Source: International Monetary Fund