With Thai economy flat-lining, it's time to look inward for answers

The question now is whether export growth can still hit this year’s official target of 3 per cent. Private investment has also fallen, by 4.4 per cent. It’s the same story for domestic consumption (-1.2 per cent) and government spending (-0.6 per cent).

Thailand’s economic growth has been inconsistent for a number of years now, falling well short of our potential of 4-5 per cent. The economy has suffered a contraction of 0.1 per cent so far this year. Without deficit spending, it would have shrunk even more. In the first half of 2014, lending growth in the banking sector came to the rescue, reaching 6.5 per cent – the only positive among a range of economic indicators that remain dead in the water.

Yet there is a good reason why bank lending should not be the source to power growth if other economic engines are not working. This is because many of those who borrow from the banks will inevitably have a hard time servicing the debt, hence creating non-performing loans that could trigger another banking crisis.

At present, overall levels of private sector and household debt remain high, at 154 per cent and 83 per cent of gross domestic product respectively. Government debt to GDP remains manageable at around 50 per cent. The only hope to revive growth is through government spending on the mega-infrastructure projects, though we must avoid making the mistake other developing nations have made: Government spending is no answer to problems with economic growth. It might help spur growth temporarily, but it inevitably fades away and leaves behind burgeoning public sector debt that future tax revenues can’t pay off. Overall, it seems we are on our way to becoming an indebted nation.

Inconsistent economic performance prompts us to ask what has gone wrong and whether Thailand has lost its competitiveness. If that is the case, then we need to face the fact with courage and start doing the right things to overhaul the economy. For without reform, the engines of Thai economic growth will continue to sputter. But we also have to decide on prescriptions for the reform process that will alleviate the condition of people on society’s bottom rung. If we can no longer rely on exports because we have lost competitiveness or because importing nations have lost their purchasing power or appetite for Thai goods, then we can settle down to improving domestic conditions. Growth will have to come from the domestic rather than the external side. The resulting growth rate might be small, but it could slow the rate at which the gap between rich and poor is expanding. In this respect, focusing on healthcare, food and agriculture, services and other sectors could be the answer to securing Thailand’s future economic health. Let’s take a break and do some rethinking.