Kiatnakin Phatra Research (KKP Research) forecasts that Thailand's potential economic growth rate will be below 2% for the next five years due to weaker productivity and competitiveness.
Between 2020 and 2029, the country's potential growth is expected to be 1.9%, declining further to 1.3% between 2030 and 2039 if no structural reforms are implemented, according to KKP Research.
Over the past three decades, the country's potential growth has significantly declined during economic crises. During the 1997 financial crisis, known as the Tom Yum Kung crisis, the GDP growth rate dropped from over 7% prior to the crisis to 5%.
In the 2008 financial crisis, often referred to as the Hamburger crisis, Thailand's GDP growth fell to 3%.
Following the Covid-19 pandemic, it decreased to an average of 2%. This weaker potential growth is attributed to three core factors: manpower, capital accumulation and technology, all of which are essential for strengthening productivity.
Due to lower productivity, KKP Research predicts that GDP potential will decrease by 0.5 percentage points per year by 2030 and by 0.8 percentage points by 2040. An ageing society is a key factor weakening Thailand's productivity.
"Thailand's working-age population [15-60 years] peaked at 70% of the total population in 2012 and has been declining by 0.7% per year afterwards," the research house said.
"The working-age population is expected to reduce to 60% by 2030. Conversely, the proportion of the ageing population increased from 10% in 2012 to 20% in 2023."
Thailand has experienced a prolonged lack of new investment across various sectors, including private investment, public investment (especially in mega-investment projects) and foreign direct investment.
Typically, increasing capital accumulation and improving technology can offset a declining workforce through new investments. However, Thailand's domestic investment has steadily decreased since the financial crisis in 1997. Before the crisis, capital accumulation averaged 6.6% per year, but it has declined to 2.1% since 2012.
The research house believes that the higher proportion of the country's service sector relative to GDP, which contributes less added value compared to the manufacturing sector, is a key factor dampening productivity. Additionally, lower educational quality and labour skills have also put pressure on productivity.
According to KKP Research, global uncertainties, including geopolitical risks, supply chain disruptions and pressures on trade and investment worldwide, will also impact the Thai economy and its competitiveness.
Additionally, the country's elevated household debt will continue to dampen domestic purchasing power.
To enhance Thailand's potential growth, KKP Research recommends that the government improve educational quality and labour skills, liberalise the service sector, increase agricultural sector productivity and implement fiscal reforms.
The research house said the agricultural sector contributes to the country's low productivity compared with other sectors while representing a large proportion of the workforce.
While fiscal reform may not directly impact productivity improvement, the increasing challenge of an ageing society will heighten fiscal risks and public expenses in welfare and healthcare, it noted.