Thailand must face transition to the 'new normal'

Jack Ma of Alibaba said recently: “As I was told in the past 20 years doing Internet business in China: Today is difficult and tomorrow is much more difficult. But the day after tomorrow is beautiful. However, most die tomorrow evening, if you don’t work hard.”

For Thailand, predicting tomorrow’s events is difficult enough. Forecasting the day after tomorrow is unimaginable, at least for issues of a political nature.

Making economic predictions also remains a dangerous game, especially when it comes to the immediate future. Most forecasts about the second half of 2015 made in the first quarter have proved to be inaccurate, if not downright wrong.

Cabinet members understandably painted a hopeful picture of the third and fourth quarters. Even business leaders and technocrats were trying to offer a bright scenario. The latest statistics, however, have confirmed that things will get worse before they get better – at least for the next couple of years.

Hence it was especially comforting when the head of the Thailand Future Foundation came up with a prediction that focused on the day after tomorrow, leaving the immediate future in the hands of ministers, academics and technocrats who have to respond to the ups and downs of the daily news cycle.

But things remain “difficult” even when talking about longer-term scenarios. Sethaputi Suthiwartnaruput warned that all Thais must face the fact that the annual economic growth rate of around 5 per cent in the past decade will drop to 3 per cent. This is the “new normal” that everyone concerned must learn to live with – and even achieving this modest growth will require hard and conscientious work. Nothing can be taken for granted anymore.

The Future Foundation’s forecast says populist policies will have to be a thing of the past. National savings will become a must. Slower economic growth will be accompanied by rising pollution and a more vulnerable energy supply position.

Major changes are in the works. Thailand’s demographic trend is towards a rapidly ageing society, which brings challenges that cannot be handled without some real planning and effective enforcement.

With a shrinking workforce, the issue of immigrant labour becomes a serious test. Thailand’s competitiveness has eroded significantly. Neighbouring countries are attracting foreign investments that would have come here in past years. With household debts rising to nearly 80 per cent of GDP, the hope of boosting domestic consumption as a substitute for export revenue appears to be wishful thinking unless real alternatives are found to lay the foundation for a brighter future.

Industrialists have reasons to be concerned when they witness electronic component factories relocating their production facilities from Thailand to Vietnam, while export of petrochemicals is slowing down after China recently switched from an importer to a net exporter of these products.

The forecast challenges a general assumption that the slowdown in exports is simply a temporary phenomenon amid a downturn in the world economy. “That may not necessarily be the case. We can’t blame the world market for all our problems. In fact, the world economy this year isn’t all that bleak,” Sethaputi said.

He argues that the country’s planners must accept the fact that they are dealing with a structural problem, made worse by changing patterns of world trade. Even if the world economy returns to its previous rate of growth, the volume and value of international trade may not return to the same level.

The new normal means that Thailand’s exports, which enjoyed an average 12 per cent annual growth in the past decade, will fall to an average 4 per cent at most, according to the forecast.

It also offers three policy recommendations that should help guide the mapping of the country’s future economic direction:

1. Beware of excessively stimulating domestic consumption in the hope of jacking up GDP growth back to 5 per cent-plus. The country’s potentials are undergoing major changes and an average of 3 per cent growth can be maintained only with a clear focus on boosting productivity in all fields.

2. Create an effective and comprehensive social security network so as to avoid a system that becomes financially unsustainable because of populist policy exploited by politicians for electoral purposes.

3. Place greater emphasis on integration with CLMV (Cambodia, Laos, Myanmar and Vietnam) and Southern China – and not only on the AEC (Asean Economic Community). Thailand’s exports to CLMV stood at $21 billion last year, more or less the same level as our exports to Japan.

For many in a country that has always been complacent about its own natural resources (“There are fish in the water and rice in the fields”), the major adjustments required to survive the next decade represent a very difficult transition.

But if we are to make it to “the day after tomorrow”, then there is no escaping the need to face the “new normal” with a renewed sense of national mission.