Hampered by sluggish exports which have been the engine of Thai growth, consumers have been reluctant to spend due to concerns over slow domestic growth and a global economic recovery. As a result, Thailand’s consumer confidence index fell to a 14-month low in July.
The government of Prime Minister Prayut Chan-o-cha has been trying to implement economic stimulus measures to boost the economy. But these efforts have hit a snag. The government recently decided to delay auctions for infrastructure projects worth 700 billion baht until next year. Meanwhile, a weakened baht is unlikely to help increase Thai exports, especially in the commodity sector where farm produce prices have been falling.
The consumer confidence index produced by the University of the Thai Chamber of Commerce dropped to 73.4 last month from 74.4 in June, its seventh consecutive monthly decline. The reading was the lowest since May last year, when confidence began rising on the hopes of an economic rebound after the military coup ended months of unrest.
Low consumer confidence has shown that the challenge facing the Thai economy goes beyond the short-term political crisis. Thailand is still struggling in the middle-income trap and it requires a new mindset to turn the economy around and get it to the point of steady growth.
In the past, sluggish domestic economic prospects were offset by a better global economic outlook, as was the case in 1997. In 2008, the strength of the Thai economy helped shield it against the US sub-prime crisis.
But this time around, Thai exports have experienced a long-term decline while domestic demand has been sluggish. The government has not been able to turn around the economy as fast as it wished because the economic slump happened both at home and abroad.
Thai economic growth in the past 30 years has relied heavily on foreign direct investment and exports. A high ratio of working-age people in the population supported the productivity of industries.
But Thailand may not be able to enjoy such a status quo in the near future. In recent years, the country has faced strong competition from emerging economies such as Vietnam, which can provide cheaper labour costs and similar incentives as Thailand to draw foreign direct investment.
While countries such as Singapore managed to move up the technological ladder to create more of a niche market, Thailand has not been able to achieve such a structural transformation.
Our structural weakness is highlighted by the country's declining ranking in the IMD World Competitiveness Index. Of the 61 economies covered in the 2015 World Competitiveness Index, Thailand is ranked 30th. The country's ranking has been falling for the past two years — from 27th in 2013 to 29th last year and 30th now.
The IMD, or International Institute for Management Development, said Thailand faced a number of long-term challenges, such as the need to promote innovation-driven and high value-added industries for long-term growth. Education reform to produce a more qualified workforce for the future was suggested, along with the need to promote greater equality in income distribution and transparency.
However, past governments have focused more on shorter term solutions for immediate political impact. For instance, to compensate for a slower external demand, past governments boosted domestic spending via populist policies, some of which led to increased household debts, which have now curbed private consumption.
Lower commodity prices and the drought have also heavily affected the purchasing power of the majority of Thais, who are still in the agricultural sector.
At the same time, the prospect of Thai exports and foreign direct investment is not as promising as it was. Thailand is not involved in the Trans-Pacific Partnership trade talks.
Thailand’s competitors such as Vietnam, Malaysia and Singapore are part of the TPP and are likely to benefit from the privileges offered by the agreement.
The changing regional and domestic economic landscape suggests Thailand needs to rethink its future policy direction to make its economy stronger and less dependent on factors it has no control of.
It may not be feasible for the Thai economy to continue to rely on exports.
To cushion the cyclical nature of farm prices, farmers should be equipped with the knowledge and ability to manage and add value to their products.
The quality of the country's human resources and their ability to move up the technical ladder with innovations provide a better solution for Thailand to grow. It’s imperative to rethink the economic strategy now to help Thailand survive the middle-income trap.