Economic Analysis
Thailand

Thailand

Population 68,838 million
GDP per capita 5742 US$
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Country risk assessment
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Synthesis

major macro economic indicators

  2014  2015 2016(f) 2017 (f)
GDP growth (%) 0.8 2.8 3.5 3.5
Inflation (yearly average) (%) 1.9 -0.9 0.3 1.6
Budget balance (% GDP)* -0.8 0.3 -0.4 -0.4
Current account balance (% GDP) 3.8 8.1 12.1 11.5
Public debt (% GDP) 43,6 43.1 43.6 44.3

 

(e) Estimate (f) Forecast

STRENGTHS

  • Diversified and efficient agricultural and industrial production
  • Regional hub open to its dynamic neighbors
  • Banking system becoming stronger

WEAKNESSES

  • Recurring political instability since 2006
  • Foreign trade dependent on the Chinese economy
  • Business climate marked by lasting links between the private sector and politicians
  • High household debt

RISK ASSESSMENT

Growth is expected to stabilise in 2017

After rebounding in 2016, growth is expected to stabilise in 2017. The economy will continue to benefit from the effects of the stimulus package initiated by the authorities in 2015. Spread over 8 years, it will account for 15% of GDP. In 2017, the construction sector will benefit from the launch of major transport infrastructure projects. Nevertheless, despite the stabilisation of the political situation, investment is expected to remain modest due to sluggish world demand. This is because exports are projected to continue to suffer from the Chinese economic slowdown. In addition, investment will be penalised by over-capacity in the manufacturing industry.
However, household consumption is expected to remain dynamic. Despite a slight rebound, inflation should stay under control and farmers' incomes will benefit from rising agricultural prices, including those of sugar. In addition, households should continue to benefit from an accommodative fiscal policy, in particular the maintenance of the VAT rate at 7% instead of 10%. Monetary policy too is expected to remain expansionary. Nevertheless, household debt levels are high (71% of GDP) and will continue to affect consumption. Moreover, the tourism sector is expected to remain dynamic, now that the political situation has been stabilised.
Nevertheless, Thailand will continue to be adversely affected by structural constraints and significant overcapacity, with the country suffering from a shortage of skilled labour and investment in R & D. In addition, recurrent political instability has adversely affected the business climate.

 

A financial position which remains robust

Despite fiscal stimulus policies put in place by the Government, the public deficit is expected to remain stable and public debt sustainable in 2017. Public debt, over 95% of which is held by residents, will remain below the 60% ceiling set by the Constitution.
Externally, the current account balance is expected to deteriorate slightly in 2017, but it will remain largely in surplus. The recovery in oil prices is projected to increase the energy bill. Moreover, exports of goods are suffering from the Chinese economic slowdown. However, despite recurrent political crises, Thailand remains a preferential manufacturing base for the automotive and electronics industries.
The fragile political stability and the reduction of liquidity because of expectations of US monetary policy tightening make the country vulnerable to a crisis of investor confidence. However, the level of foreign exchange reserves is comfortable (almost 10 months of imports), providing the country with satisfactory capacity to resist sudden capital flight.

 

Following the adoption of a new Constitution, elections could be held in early 2018

Following the ousting of Yingluck Shinawatra on 7 May, 2014, the military declared martial law on 20 May, 2014, citing the risk of civil war. On 22 May, the head of the army, General Prayuth, announced a coup d'état, a curfew, the suspension of the Constitution and the creation of a National Peace and Order Maintaining Council. On 21 August, he was appointed as Prime Minister by the Parliament and formed a government, one-third of which consists of military personnel. He also indicated that no election could be held before the necessary reforms had taken place. Initially scheduled for the end of 2015, the elections have been postponed several times. The adoption of a new Constitution by referendum (61% of the electorate in favour) in August 2016 should allow the holding of parliamentary elections in 2018. Nevertheless, the new Constitution reduces the weight of universal suffrage in the appointment of the Prime Minister. The Prime Minister will, from now on, be appointed by an Assembly made up of 500 elected members and 250 appointed members and he will, also, be compelled to follow the national development plan for a period of 20 years put in place by the current administration. The Constitution is expected to be ratified by the new King of Thailand in February 2017. Following the death of his father on 13 October, 2016, Crown Prince Maha Vajiralongkorn agreed to become the new King, Rama X, on 29 November. Although he lacks the popularity of his father, Rama IX, who was a symbol of continuity and stability in a country marked by many coups d'état (14 since 1932), the transition is expected to be smooth, with the new sovereign supported by the ruling military government. However, new demonstrations and further political instability are to be feared in the run-up to the parliamentary elections in 2018.

 

Last update : January 2017

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