The World Bank expects Thailand's potential growth to be the lowest among Asean economies over the next 20 years because of the country's ageing demographics and a slowdown in private investment.
The potential growth of Thailand's economy is expected to be around 3% for the next 20 years, the lowest level in the region, without economic reform.
The low level is attributed to an ageing society, an easing of private investment and reduced labour productivity, said Kiatipong Ariyapruchya, the World Bank's senior economist for Thailand, at the bank's seminar to launch the Thailand Economic Monitor report on Thursday.
The World Bank forecasts Thai GDP growth for 2024 and 2025 at 3.2% and 3.1%, respectively, the lowest rate in Asean. The growth should be paced by a goods export recovery, tourism, and sustained private consumption.
Thailand's economy is somewhat reliant on the tourism industry, contributing 13% of GDP, according to the report.
Mr Kiatipong said Thailand's lagging recovery diverged from its Asean peers, with gaps equivalent to 7-10% of GDP during the post-pandemic period from 2022.
Global headwinds caused a sluggish recovery of the Thai economy and widened the recovery gap with peers, he said.
Thailand's foreign direct investment (FDI) inflows contracted in 2020 compared with the growth of regional peers including Indonesia, the Philippines, Malaysia, and Vietnam.
Net FDI inflows improved over 2021-2022, but remained behind Malaysia and Vietnam.
In addition, manufacturing remained below pre-pandemic levels, diverging from private consumption and services, Mr Kiatipong said.
To improve its long-term growth potential, Thailand needs structural reform via fiscal policy by investing more in human capital, quality education, health, climate change adaptation and tax reform, he said.
In particular, human capital investment is needed to improve labour skills and productivity in the long term, noted the report.
Thailand needs to improve learning outcomes, enhance transparency in services trade and strengthen competition policy, said the bank.
Promoting FDI in targeted innovative sectors to increase capability, particularly environmentally-friendly technologies and practices, is also needed. Thailand needs to enhance fiscal resilience while addressing challenges posed by an ageing society, noted the report.
In the medium term, the country should focus on more targeted social assistance and transfers, especially pensions, to efficiently address welfare and poverty alleviation.
Reforms are needed to improve public spending efficiency, particularly in healthcare and education, said the bank.
"Such reform would strengthen potential growth to 4-5% per year in the long term," Mr Kiatipong said.
Thailand has sufficient fiscal space to increase its spending on key social protection measures without risks to fiscal sustainability. The country can also raise tax revenue, such as value-added tax and carbon tax, and maintain fiscal sustainability while meeting both spending pressures and investment needs, noted the report.
Thailand's poverty rate likely declined in 2022 because of the labour market recovery, said the bank. Per capita household consumption grew 8.1% between 2021 and 2022, as the unemployment rate declined and average wages rose.
With the uptick, the World Bank anticipates the number of Thais below its poverty line of US$6.85 (239 baht) a day fell to 11% in 2022 from 12.2% in 2021.