Thailand

Thailand experienced comparatively moderate GDP growth in the decade prior to the Covid-19 crisis, with an average annual growth rate of +3.6%. However, the pandemic significantly impacted the economy, resulting in a contraction of -6.1% in 2020 followed by a slow recovery in 2021 (+1.5%) and 2022 (+2.6%). We estimate the economy to have slowed down to an annual growth rate of +2.4% in 2023 due to the drag from challenging external conditions – notably weak global demand and the slowdown in China broadly offsetting the positive contributions from private consumption growth. Looking ahead, we expect economic growth to accelerate to close to +3% in 2024 and 2025 on the back of a gradual recovery in external demand, an acceleration in inbound tourism, higher investments and continued robust private consumption. Further, Thailand stands to benefit significantly, especially in terms of higher FDI inflows as multinational firms look to diversify supply chains away from China – conditional on incentives to improve its competitiveness relative to its regional peers (notably Vietnam and Indonesia).

The Covid-19 crisis saw a shift in the broad fiscal policy stance of Thailand. The fiscal deficit deviated significantly from its trend in 2020 (-4.5% of GDP), 2021 (-7%) and 2022 (-4.6%) – compared with -0.8% of GDP in 2019 and -0.3% of GDP on average in the 2010s. We expect the fiscal deficit to moderate to an annual average of -2.7% of GDP during the period 2023- 2025, in the context of populist policies to stimulate domestic consumption and higher infrastructure investments, but also stronger growth and therefore higher government revenues.

On the monetary policy front, the Bank of Thailand switched to monetary tightening in August 2022 with a cumulative increase of 200bps by the end of 2023, on the back of a considerable depreciation of the Baht against the US dollar and rising inflation. Looking ahead, we expect the monetary policy stance to remain neutral in the near term with a gradual easing thereafter likely depending on the government’s expected fiscal expansionary path and a gradual easing of inflationary pressures. After rising to a record high of 6.1% in 2022, we expect headline inflation to ease to 1.4% in 2023 and 2024, followed by a slight increase to 1.5% in 2025, thereby remaining within the target range of the central bank (1-3%). However, demand-induced inflationary pressures cannot be completely ruled out – notably from strong private consumption growth, wage growth prospects and fiscal stimulus measures.

Thailand’s business environment has deteriorated over the past few years, according to our assessment of 185 economies, in which the country now ranks just below average. The Heritage Foundation’s Index of Economic Freedom 2023 survey assigns Thailand rank 80 out of 184 economies, down from rank 42 in the 2021 survey, reflecting deteriorations regarding property rights, judicial effectiveness, government integrity, business freedom, labor freedom and trade freedom. Meanwhile, the World Bank Institute’s annual Worldwide Governance Indicators survey suggest weakness in regulatory quality and the control of corruption based on the 2022 survey, with a slight decline from the previous year. Our proprietary Environmental Sustainability Index puts Thailand at rank 154 out of 210 economies, reflecting weaknesses in terms of renewable electricity output, the recycling rate and overall climatechange vulnerability. However, the country scores better with regard to energy use and CO2 emissions per GDP as well as water stress.

The current coalition government led by Srettha Thavisin faces challenges despite its comfortable majority in the House of Representatives due to differing interests of the component parties within the coalition. Voters have been disillusioned over the alliance between the Pheu Thai Party (PTP), which promised greater democracy, and the military aligned parties. Further, the leading opposition party – the Move Forward Party (MFP) faces a serious charge that its campaign to introduce reform of the monarchy is equivalent to trying to overthrow the current governing system of constitutional monarchy. In the short to medium term, risks to political stability in Thailand cannot be completely ruled out.