Following a disappointing GDP expansion reading of only 1.5% in the first quarter, trailing other economies in the region, the Thai government plans to pick up the pace to stimulate economic growth.
An economic cabinet meeting was called for the first time last week to address urgent issues, with weekly meetings scheduled going forward.
Prime Minister Srettha Thavisin voiced concerns over a possible recession, if not for the service and tourism sectors.
The private sector holds a range of opinions about recession risks, but some raised concerns that the tourism sector might not be strong enough to buttress the economy in the long run without a proper development direction.
RECESSION UNLIKELY
Members of the Federation of Thai Tourism Associations (Fetta), a grouping of key tourism organisations, believe the tourism industry cannot be the sole support to save the economy from a downturn.
Sisdivachr Cheewarattanaporn, president of the Association of Thai Travel Agents and a member of Fetta, said problems on the supply side have not been seriously addressed for decades, which weakens the competitiveness of the country in the long run.
He said the state goal of 3.5 trillion baht in tourism revenue this year is a real challenge because not all international markets are healthy and growing. For example, many Chinese have to tighten their travel budget as the mainland's economy stagnates, said Mr Sisdivachr.
While the Thai government targets 8 million Chinese arrivals this year, he said the most likely scenario is 7 million, with expenditure static because of changing travel behaviour.
However, the country may not post a recession this year if other sectors, such as industry and exports, are provided more stimulus measures from the government, said Mr Sisdivachr.
The Finance Ministry and the National Economic and Social Development Council (NESDC) both believe the economy is unlikely to face a recession this year. They anticipate accelerated growth for the remaining months of the year.
A ministry source who requested anonymity said although economic growth in the first quarter was relatively low at 1.5%, there is optimism the pace will accelerate significantly in the remaining months.
"It is highly probable the growth rate could surpass 2.4% for 2024 if the rate accelerates in each subsequent quarter, reaching its peak in the fourth quarter," the source said.
PROMISING INDICATORS
The source cited the most recent indicators from April, revealing a promising growth trajectory compared with the first quarter. Notably, tourist numbers surged by 4% month-on-month.
April also witnessed a resumption in export growth, reaching 6.8%. Although data on industrial production has yet to be released, expectations are optimistic for robust growth in this sector as well, said the source.
According to the source, key risks to monitor include the recovery of China's economy, which is hampered by the real estate sector; geopolitical conflicts between major powers, such as China and the US, as well as war in the Middle East; and government stability.
The NESDC, which reported the first-quarter growth figure, forecast annual expansion of 2.5% this year, in a range of 2-3%. This would be an improvement from 1.9% last year.
The state planning unit expects a supporting factor this year will be accelerated disbursement of the government investment budget following the implementation of the fiscal 2024 budget at the end of April, after a delay of seven months.
According to the NESDC, other drivers include the ongoing recovery in the tourism sector as foreign tourist arrivals increase; growth in domestic consumption, especially services; and an uptick in private investment, consistent with the increase in capital goods imports, investment promotion in industrial zones, and the gradual recovery of exports as global trade recovers.
The unit said economic risks comprise high household and business debt burdens, with rising interest obligations, leading financial institutions to increase caution in lending; the impact of climate change; risks from global economic and trade volatility, which may escalate based on geopolitical conflicts; and changes in the monetary policy direction of major economies, as well as a slowdown in China's growth.
NO SIGNS
Sanan Angubolkul, chairman of the Thai Chamber of Commerce, said a technical recession requires the economy to contract for two consecutive quarters.
"Reviewing the economy over the past six quarters, from the fourth quarter of 2022 to the present, it's evident that while Thailand's GDP has not grown remarkably, it has been positive, hovering around 2% and far from zero," he said.
"There are no signs of an impending recession."
The chamber said first-quarter GDP growth was low because of delays in government formation and annual budget disbursement.
This led to a contraction in government spending, both in investment and regular expenses, causing a slowdown in the manufacturing and construction sectors.
The export sector also declined as the global economic slowdown affected Thai manufacturing, compounded by the agricultural sector suffering from drought, said the chamber.
However, Mr Sanan said the recent economic ministers' meeting is expected to yield new stimulus measures.
The chamber anticipates an economic improvement in the latter half of the year, especially in tourism, which is projected to meet the state target of 36 million foreign arrivals, registering robust growth.
Furthermore, annual budget expenditure for fiscal 2024 is poised to be injected into the economy, along with potential contributions from the digital wallet scheme in the final quarter. These factors should drive expansion in all sectors, he said.
Economic variables to watch include domestic politics and geopolitical issues because they will influence whether the Thai economy can achieve its growth targets, said Mr Sanan.
BIG INDUSTRIAL CHANGES
The manufacturing sector requires serious change to increase GDP growth, though the sluggish economy should not fall into recession, said Tanit Sorat, vice-chairman of the Employers' Confederation of Thai Trade and Industry (EconThai).
Any push in industrial policy should be done in tandem with efforts for more political stability, he said.
"We should not solely attribute blame to short-term factors such as delays in budget spending. We must delve into the underlying causes of our sluggish economic growth," said Mr Tanit.
He said GDP growth has remained low for a decade because of a combination of economic and political factors, including a military coup that slowed some state projects that aimed to strengthen the economy.
Mr Tanit called for plans to improve technologies in the industrial sector, while ensuring there is a sufficient number of workers to serve manufacturers.
He said the government has been promoting Industry 4.0 (the fourth Industrial Revolution) for years, encouraging factory operators to blend digital technology with data analytics, but most industries are at the Industry 2.0 level, which focuses on productivity and considerable production capacity.
Thailand has been stuck at this level for some time as manufacturers continue to work in some agro-industries that cannot compete with other countries amid high price fluctuations for crops in the global market, said Mr Tanit.
A report by the Industry Ministry in 2021 found 61% of domestic industries were at Industry 2.0, with only 2% categorised as Industry 4.0.
Some 28% were at Industry 3.0, which uses more technology, including automation systems, to replace human labour.
Roughly 9% were at the Industry 1.0 stage, the lowest level of technological development, which uses some machinery in the production process.
Thailand was once a production hub of hard disk drives, but they have become an "old technology" and the country needs to focus on manufacturing printed circuit boards and smart electronics, he said.
In the automotive sector, the nation was once dubbed "the Detroit of Asia" based on its role as a global production hub for internal combustion engine (ICE) vehicles.
However, similar to the shift from hard disk drives, ICE technology is gradually being replaced by electric vehicles (EVs), compelling the industry to transition.
"EVs can help stimulate the development of new digital products," said Mr Tanit.
He also stressed the need to solve the labour scarcity problem, which has prompted Thailand to import several million migrant workers from neighbouring countries.
Visitors at a pawn shop at the recent Money Expo 2024. High household and business debt burdens, with rising interest obligations, are leading financial institutions to increase caution in lending. Varuth Hirunyatheb
GRADUAL RECOVERY
KKP Research, a research centre under Kiatnakin Phatra Financial Group, also predicts a gradual improvement in the economy in the latter half of this year.
However, this recovery could be fragile because of various underlying structural issues, said the unit.
KKP is maintaining its projection for GDP growth in 2024 at 2.6%.
According to KKP Research, Thailand recorded the lowest GDP growth rate in the region during the post-pandemic period, following a contraction of 6.1% in 2020.
Subsequent growth rates were 1.6%, 2.5% and 1.9% in 2021, 2022 and 2023, respectively.
Since 2021, Thai GDP growth has consistently lagged behind the potential growth rate, which ranged from 3-3.5% in the period before the pandemic, said the research house.
The Thai economy is grappling with fundamental structural challenges, notably in the manufacturing sector, driven by digital disruption and shifting global demand, according to KKP Research.
Exports of value-added products have been declining, while the country's export growth has been partly driven by rerouting rather than organic expansion, said the unit.
Moreover, the Thai economy has entered into a deleveraging cycle, meaning debt repayment rather than loan growth, noted KKP Research.
Given the country's elevated household debt, credit risk in the banking sector has been rising amid weak economic growth.
As a consequence, banks have tightened loan approvals, affecting business liquidity and suppressing economic growth.
The service sector is a crucial driver of post-pandemic GDP growth in Thailand, said the research unit.
Since 2021, the service sector posted average growth of 3%, in stark contrast with the 0.5% contraction in the manufacturing sector.
However, the growth of the service sector is mainly fuelled by offshore demand, particularly from foreign travellers, while the manufacturing sector's capacity utilisation remains lower than pre-pandemic levels, according to KKP Research.
Amid this uneven economic growth, several segments have sagged, leading to a rise in business closures, said the unit.
"Since the beginning of 2023, the number of factory closures has increased from 1,100 to 1,700, compared with the same period the previous year," said KKP Research.
"The closure rate surged in the latter half of last year, correlating with a weaker manufacturing index."
ZOMBIE ECONOMY
Analysts said increasing political uncertainties have negatively affected investment conditions over the past week, while there is a lack of positive factors such as short-term stimulus measures.
Saharat Chudsuwan, deputy managing director of Tisco Asset Management, pointed out the Constitutional Court gave Mr Srettha 15 days to justify Pichit Chuenban's nomination to the court.
"The outcome is unclear, but certainly political issues have affected investment, causing investors to wait and see the results," he said.
"If Mr Srettha is found guilty, the economy may enter a zombie state, but not a recession as the tourism and export sectors are supporting economic growth," said Mr Saharat.
"But there is a lack of stimulus measures, stopping the economy from growing as it should."
In addition, there are no positive factors for the Thai stock market, he said.
"The political situation is unstable, while the economy and profits of listed companies grew a little," said Mr Saharat.
"However, if interest rates are cut and budget disbursement is accelerated in the second half, it will support the Stock Exchange of Thailand index rising in the short term, with a target of 1,450 points."
The Finance Ministry is preparing to revive tax-deductible long-term equity funds (LTFs), he said.
If the government maintains the holding period at five years, LTFs will be attractive to investors, spurring inflows to the stock market during the economic downturn, said Mr Saharat.
Nuntawun Polkuamdee, Lamonphet Apisitniran and Narumon Kasemsuk