SCB Economic Intelligence Center (EIC), the research arm of Siam Commercial Bank (SCB), has sounded the alarm on lower potential growth for Thailand's economy in the long term, calling for structural reform.
SCB EIC is concerned with the slower pace of the country's long-term economic growth, which is falling below its potential level following the pandemic.
This is a result of prolonged structural issues including low investment, lower total factor productivity, and economic scars from the pandemic, said Somprawin Manprasert, chief economist at SCB EIC.
The speed of economic recovery in Thailand has been slower than neighbouring countries such as Malaysia, Vietnam and China, especially in terms of industrial and service output.
Moreover, the Thai economy remains uncertain and fragile as a result of high levels of household and business debt, especially among low-income earners and small and medium-sized enterprises (SMEs).
"Thailand experienced rapid growth, at an annual rate of around 8%, before the Asian Financial Crisis in 1997. Growth slowed to an average of 3.9% during 2000–2014, declining to around 3% at present, and it will be at this level for the next few years. The subpar GDP growth is mainly due to a significant slowdown of private investment," Mr Somprawin said.
He said the Thai economy faces uncertainties stemming from external factors, including climate change and heightened geopolitical conflicts, and internal factors such as government policies that must be monitored closely.
Highly uncertain state policies could squeeze the fiscal buffer for additional spending to address economic uncertainties and promote investment to enhance Thailand's long-term potential, said Mr Somprawin.
SCB EIC proposes long-term economic policies to enhance Thailand's competitiveness and sustainable growth. The policies should enhance Thailand's competitive edge, both at domestic and international levels, and broaden economic opportunities.
To do so, the government should promote fair competition and support Thailand joining the Organisation for Economic Co-operation and Development (OECD). As an OECD member, Thailand could benefit from expansive export markets while strengthening its footing in the global supply chain.
The policies should propel sustainable economic growth via tax policy restructuring to reduce inequality by avoiding tax schemes that could distort business or household decision-making, said the centre.
SCB EIC slashed its growth forecast for 2023 and 2024 from 3.2% and 3.5% to 2.6% and 3%, respectively.
The slower growth projection is attributed to lower than expected foreign arrivals, which are projected at 36.2 million in 2024, down from 37.7 million in an earlier outlook.
The economy would be supported by exports, which will expand as global trade grows, said the centre.
Private investment should pick up in line with an export recovery, rising investment approvals from Thailand's Board of Investment, and economic stimulus schemes from the government.
The Bank of Thailand is expected to retain the policy interest rate at 2.5% throughout 2024, which is in a neutral zone in line with the country's continued recovery.
Meanwhile, inflation is forecast to gradually speed up to within the targeted range of 1-3% next year, driven by supply pressures.