What’s Really Ailing Thailand’s Economy?

Last year, the Thai economy grew 1.9 percent, and analysts have trimmed their outlook for this year, with the World Bank now projecting GDP will grow by 2.4 percent. The first quarter of 2024 did little to assuage concerns, as growth came in at just 1.5 percent. Meanwhile, many of Thailand’s regional peers have seemingly bounced back after the pandemic and are achieving stable and relatively strong rates of growth. Indonesia’s GDP has been growing consistently at around 5 percent, while the Philippines’ grew 5.6 percent last year. This makes Thailand’s post-pandemic economic woes somewhat of an anomaly in Southeast Asia. Why is this the case?

Certainly, domestic politics are part of it. The current government is a patchwork coalition that came together in a very transactional way. The common interest that brought them together – preventing the Move Forward Party from gaining power – has proven to be a less than ideal foundation for governing. Policies are sometimes rolled out in a seemingly ad hoc fashion and then walked back, and the stability of the coalition is an ongoing question. This makes it hard, even under favorable macroeconomic conditions, to run a government effectively.

But the real issue is that macroeconomic conditions are not favorable for a country with the kind of economy that Thailand has. There is a very important fact that we must establish at the outset, which is that Thailand’s economy is heavily structured around exports. The country exports more services than most of their neighbors, mainly in the form of tourism. And they also specialize in the export of manufactured goods. For instance, Thailand is the regional leader in auto and auto part exports and has been for years.

For this model of economic development to work, Thailand needs a stable and preferably under-valued currency, and it needs global demand for its goods and services to be high. It is no coincidence that when the Thai economy was growing at 4.2 percent in 2017, it was also running a surplus in its current account of $44 billion.

Right now, Thailand’s main problem is something that they have no control over and cannot fix, which is that global demand for Thai goods and services is weak. Last year Thailand’s current account surplus was just $7.4 billion, which might be okay for some countries but not for one that relies as heavily on exports as Thailand. International tourism in 2023 was also only about 70 percent of where it was in 2019. Those figures are likely to improve in 2024, but the longer the recovery takes the harder it is on the Thai economy.

This is not a uniquely Thai problem, either. It is part of a global phenomenon as sharpening geopolitical tensions have shifted the structure of the global economy in recent years. Countries that were once more willing to run trade deficits and absorb excess global production, like the United States, are now less willing to do so and are even erecting trade barriers. This hurts surplus countries, like Thailand, especially hard.

This issue has been compounded in Thailand because consumers also have very high levels of debt and interest rates are currently elevated in response to rate hikes in the United States. This make it even harder for Thai consumers to offset the fall in exports. The Srettha government is trying to address some of this through stimulus measures and doing some limited debt relief, but while they may have the right idea the execution arguably leaves something to be desired. 

That is where political instability may be exacerbating Thailand’s economic woes, because it is preventing the government from crafting the most effective policy responses to an economic slowdown. But it’s not the cause. And the truth of the matter is, this slowdown would likely be happening no matter who was running the government.

No Thai prime minister or government can force global consumers to buy more Thai products and services. And until they do, Thailand’s economy is likely to be on the sluggish side.