Until structural reform begins in earnest, our economic outlook will remain uniquely bleak in the region
Having run the country for more than three years, the Prayut government is still struggling to gain popularity on the economic front, while the country’s longer-term structural issues remain unresolved.
In a telling revelation, the University of Thai Chamber of Commerce’s consumer-confidence index for July was 73.9, pointing to a seven-month low after several provinces in the North and Northeast were hit hard by floods. The July index fell for the third month in a row due to weak agricultural prices, especially for rice, tapioca, rubber, corn and pineapple, resulting in less purchasing power for a huge segment of provincial population.
Against a backdrop of a relatively weak macro-economic recovery, consumers also expressed worries about their wellbeing through the remaining months of this year, given that the cost of living continues to rise amid stable or falling incomes. The country’s GDP is forecast to grow 3-3.5 per cent this year, indicating a relatively weak recovery compared to other Southeast Asian countries. In fact, Thailand is lagging behind most of its neighbours in terms of economic growth rates over the past decade.
Banyong Pongpanich, executive chairman of Kiatnakin Bank, painted a bleak picture at a recent Chulalongkorn University seminar on the country’s economic outlook.
Due to the extended period of relatively low growth rates, Thailand’s GDP will likely be surpassed by Malaysia’s in the next few years. Currently, the Thai GDP is about US$400 billion, making it this region’s second-largest economy after Indonesia. The figure is far higher than Malaysia’s $296 billion, but that country’s annual growth rate is higher than Thailand’s.
The Philippines’ GDP, worth about $300 billion in 2016, is also expanding at a higher rate than Thailand’s, so it too is hot on our heels.
Last but not least, Vietnam, whose GDP was worth about $200 billion in 2016, is another high-growth economy in Southeast Asia. From 2000 to 2016, the Vietnamese economy grew by an average of 6.19 per cent, so the Vietnamese GDP can also surpass that of Thailand in the next several years if we remain mired in low-growth economy.
In fact, Thailand has been growing at a rate lower than the 4.8-per-cent annual average among all Asean economies over the past decade, largely due to structural and income inequality issues, as well as an unfavourable political climate.
The country’s structural challenges are both economic and educational, resulting in an inability to grow beyond the 3-3.5-per-cent-range over the past decade. Overall, effective economic and educational reforms are crucial to the Kingdom’s longer-term competitiveness, but the tasks required for reform are daunting and time-consuming.
In addition, Thailand is also facing a widening economic and social inequality due to the uneven distribution of economic benefits. This is evidenced by the fact that companies listed on the Stock Exchange of Thailand enjoyed a huge increase of 31 per cent in combined earnings last year, compared to a meagre rise of earnings or no growth at all for middle- and low-income people. In other words, shareholders of Thai companies whose combined earnings account for 25 per cent of Thailand’s GDP got an outsized share of economic gains, even though the overall national economy grew at a rate of only 3.5 per cent.
This trend is unsustainable and can only be corrected by effective structural reforms that increase international competitiveness while reducing domestic inequality.