Why Is Thailand struggling to keep pace with Vietnam's rapid rise?

Vietnamese President To Lam visited Thai Prime Minister Anutin Charnvirakul to mark the 50th anniversary of bilateral relations. But beneath the diplomatic symbolism lies an uncomfortable economic reality. Thailand is increasingly lagging behind Vietnam’s rapid rise.

Earlier this year, Thailand was labelled the “sick man of Asia” by foreign media, while Anutin rejected the claim and pledged to drive the Thai economy toward GDP growth of more than 3%.

However, amid populist policies and mounting criticism over projects that undermine environmental sustainability and economic feasibility, Thailand’s economic policies continue to face criticism for prioritising short-term stimulus over long-term structural reform.

It is understandable that the Thai government allocated a massive 175 billion baht for the “Thai Help Thai Plus” scheme to stimulate domestic purchasing power, alongside 1.62 billion baht to upskill five million Thais in AI. However, these policies appear to have been designed and implemented with only a short-term vision.

While foreign investors are calling for regulatory reform, green energy, climate resilience, and education reform, the Thai government’s short-term stimulus may boost consumption temporarily, but it does little to address long-term competitiveness.

Thailand’s economy nevertheless recorded positive growth of 2.8% in the first quarter. However, this is a lagging indicator, as energy shocks stemming from Middle East tensions and inflationary risks have not yet been fully reflected in the figure.

Thailand’s National Economic and Social Development Council projected that the country’s GDP growth in 2026 would reach between 1.5% and 2.5%, with a midpoint of 2%.

Meanwhile, ASEAN’s manufacturing hub, Vietnam, is charting a different course. Its GDP growth this year is projected at 7.2%, supported by proactive strategies to attract greater foreign investment.

With comparatively low labour costs, Vietnam has successfully attracted new investment in manufacturing and processing industries, reinforcing its rise as a regional fast-growing economy.

Vietnam aims to become a high-income country by 2045, with ambitions for double-digit growth and a transition toward high-value industries. Increased national infrastructure investment and large-scale projects are also expected to drive economic growth.

The question is why, after the 1997 Asian Financial Crisis, known in Thailand as the Tom Yum Kung Crisis, Thailand has maintained only moderate growth, while Vietnam has achieved rapid expansion.

You may argue that Thailand is already a mature economy and therefore should not be directly compared with Vietnam. Yet, the reality is that Thailand’s overreliance on tourism has weakened the country’s resilience. During the pandemic, Thailand’s economy contracted by 6.05%, while Vietnam still maintained positive growth.

Human capital also presents a stark contrast. Vietnam’s population of more than 102 million has a median age of roughly 34 years, while Thailand’s population of over 70 million has a median age of 41. Thailand is already entering an aged society, while Vietnam continues to benefit from a younger workforce.

Unfortunately, Thailand is no longer the first choice for many foreign investors. One regional chamber president told me bluntly that investors increasingly choose Vietnam over Thailand because of its investment environment and younger population.

Thailand, however, still has opportunities. But the government needs to move quickly and responsibly. Attracting more talented immigrants, reforming the education system to meet global labour demands, and encouraging multinational corporations to establish regional hubs in Thailand are urgent challenges that must be addressed.

A useful test of Thailand’s competitiveness is whether global technology leaders would choose the country as a base for advanced R&D investment. If you were Jensen Huang, CEO of NVIDIA, or Lisa Su, CEO of AMD, would you establish a data centre or R&D hub in Thailand?

At present, Thailand still lacks the depth of skilled human capital and research ecosystems required by high-tech industries, making it a less attractive destination for companies seeking advanced innovation capabilities.

Microsoft and Amazon Web Services have already committed billions of dollars to cloud and AI data centres in Singapore because of its advanced infrastructure and business ecosystem. Thailand has yet to establish itself as a major regional AI hub. 

While Google has also invested in a data centre in Chonburi, many would argue that R&D facilities remain far more important in the AI value chain.

Back in Vietnam, while the country has yet to attract large volumes of investment from high-tech firms, its manufacturing-based economy is steadily progressing toward its goal of becoming a high-income nation.

Thailand aims to achieve high-income status by 2037. But, with its current strategies, can the country realistically reach such an ambitious target through populist policies and short-term economic stimulus schemes alone? And what about its ambition to join the OECD?

Thailand is increasingly caught between two competing regional models. Vietnam is emerging as ASEAN’s manufacturing powerhouse, attracting factories, supply chains, and labour-intensive investment. Singapore, meanwhile, dominates high-value sectors such as artificial intelligence, finance, cloud infrastructure, and advanced research ecosystems.

Thailand risks falling into an uncomfortable middle ground: too expensive to compete with Vietnam in labour-intensive manufacturing, yet still lacking the research capabilities, human capital, and innovation ecosystem needed to rival Singapore in high-technology industries.

Anutin’s government needs to move urgently to reform bureaucratic and complex regulations, while also overhauling the education system before it becomes too late to act. The cabinet is far from inert, but it must place greater focus on the right priorities.

Thailand’s economy still has the potential to return to stronger growth, supported by the country’s geographic advantages, tourism sector, position as a regional medical hub, and globally competitive food industry. 

Foreign investors also continue to view Thailand as an investment destination. Ultimately, restoring sustainable economic growth will depend on the capability, policy direction, and management of the government under Prime Minister Anutin.

Thailand still retains significant structural advantages. But without deeper reforms in human capital, innovation, and competitiveness, the country risks remaining regionally important while gradually losing its position as a regional leader.