The World Bank’s latest Global Economic Prospects report has estimated that economic growth in Thailand will slow to just 2 percent in 2016, down from 2.5 percent in 2015.
This has been attributed to subdued growth in exports, high household debt restraining purchasing power and political uncertainty giving pause to private investors.
Thailand’s economic performance has also affected growth in the wider region. The East Asia and Pacific region didn’t perform as well as expected in 2015 – growth slowed to around 6.4 percent; 0.3 percentage points below June 2015 estimates – and this is regarded as largely the fault of a weaker than expected recovery in Thailand and the decelerating growth in China.
The one area Thailand did perform well in during 2015 was in attracting Foreign Direct Investment (FDI); managing to attract capital inflows above the level it achieved before the global financial crisis.
This is a double edged sword, however.
While Thailand’s ability to attract FDI is impressive, the deep integration between East Asian and Asia Pacific countries means that Thailand’s economy is also vulnerable to slowdowns in some of its biggest capital source markets.
Chinese nationals, for instance, provide 18 percent of all Thailand’s tourist inflows and contribute over 2 percent of GDP in tourism revenue. If the slowdown in China subdues tourist spending, Thailand could find its revenue from tourism start to splutter.
Meanwhile, FDI from Japan accounts for 40 percent of Thailand’s total inflows. If Japanese growth happens to slow by 1 percentage point, Thailand’s GDP will be so affected that it too will decline, by 0.5 percent.
The World Bank sets Thailand’s top two priorities as sorting out its internal affairs, namely reducing price distortions and increasing purchasing power by reforming the rice and rubber price-support schemes, and to improve public infrastructure.
Although expected to drop to just 2 percent in 2016, GDP growth is expected to moderately rebound to 2.4 percent in 2017 and 2.7 percent in 2018, according to World Bank Figures.
Featured image is via Viewology
