Thailand’s Economy could be set for a fall in GDP, not just low growth. Population Crisis threatens GDP as Digital Wallet Scheme is launched. A top bank report suggests Thailand is on the same road as Japan. In short, it is facing decades of decline. The reason is the country’s working population is set to fall off a cliff.
As Thailand’s government launched its Digital Wallet scheme this week to boost growth and with results for the second quarter expected shortly, maybe it is time to look at the bigger picture and confront Thailand’s economic prospects. In short, the genuine likelihood is that its GDP may at some point go into decline if it fails to overcome its population crisis. This week, an Economic Intelligence Centre (EIC) study from Siam Commercial Bank suggested that Thailand is on the same road as Japan. It suggested weak growth extending until 2050. However, the reality is that the kingdom, whose population may halve over the next fifty years or so, is facing a severe decline in GDP. The answer, if there is any, may lie in inward immigration.
As Thailand’s government struggles quarter to quarter and year to year to hold GDP growth at least above water, this week a groundbreaking report was issued by Siam Commercial Bank.
Its Economic Intelligence Centre (EIC) compared Thailand’s outlook to Japan’s. The similarities are stark.
Both are export-oriented economies with close-knit societies. In short, immigration in Thailand and Japan is not equivalent to immigration in places like Europe and the United States.
Birth rates are falling sharply leading to a smaller working population and lower GDP growth in Thailand
Furthermore, the reason that immigration is becoming a hot topic is that birth rates are falling. Indeed, we are now approaching a time when the overall population and, in particular, the working population, are about to fall precipitously.
Despite the overblown rhetoric of high technology and increased productivity, essentially one economic driver cannot be ignored.
A smaller population leads inevitably to lower GDP.
It is quite basic; it is a natural progression.
The world over, and particularly Thailand, is now confronting this daunting prospect.
Japan is the country most advanced along this path. Despite polite efforts to raise birth rates, these are falling worldwide as United Nations initiatives in human rights and female empowerment are essentially at odds with the traditional role of women creating families.
Thai Economy is in crisis strangled by private debt, lower than expected growth and falling momentum
In brief, to put it bluntly, the developed or even developing world does not want to go back to traditional family values with women focused on bearing children.
Clearly, in August 2024, that is the story in Thailand.
The economy, at least at the grassroots level, is in a crisis. The birth rate in 2023 was 9.532 per 1,000 people, effectively a decline of 1.91% just from the year previously.
Therefore, the women of Thailand have decided, the die is cast.
Analysts are suggesting that the Thai economy may have grown by 1% in the second quarter of 2024. That’s down from the 1.5% confirmed in the first three months of the year. Certainly, even this figure when announced in May by the National Economic and Social Development Council (NESDC) came as a surprise to most pundits.
For instance, a Reuters poll had projected a growth rate of only 0.8%.
First-quarter GDP growth surprises analysts based on higher tourism and consumer spending growth
At this time, the 1% projection is coming from the Bank of Thailand Monetary Policy Committee unit. Significantly, it also projected a lower growth rate for Quarter One before it was confirmed by the NESDC.
Economic Intelligence Centre (EIC) notes similarities between Thai and Japanese economies post-pandemic
At the same time, this week the Economic Intelligence Centre (EIC) and Siam Commercial Bank produced its sobering report.
In short, it highlighted Thailand’s declining growth rates and compared the Thai economy to Japan.
For Japan, the trigger was the asset bubble crisis which unfolded from 1986-1991. For Thailand, it was the pandemic economic crisis which ran from 2020-2022.
Certainly, the damage inflicted on the Thai economy with its 6.1% contraction in 2020 has not been fully repaired.
Nonetheless, both scenarios have one thing in common: a plummeting birth rate and an ageing crisis.
A 2023 report from the Ministry of Public Health suggested that the number of new births in Thailand in 2022 was only 485,085. Basically, if the trend continues, Thailand’s population will plummet to 33 million by 2083.
Furthermore, at that time, the majority of those living will be elderly.
Thailand’s working population will decline significantly without inward immigration or a birth rate miracle
For instance, even at its best, the working population before the pandemic was approximately 50 million adults.
In turn, this is presently on course to fall to 38 million by 2050. That is only 26 years away—a fall of 24% in those driving output through the economy. Undoubtedly, this is going to impede economic growth.
Indeed, it is quite plausible that without significant inward investment and technological innovation, the economy may unravel.
Significantly, the EIC report does not deal in detail with this aspect of the analysis. Chief Economist Somprawin Manprasert speaks of a loss of confidence in the private sector.
“Thailand’s economy is likely to enter into such a pattern during the post-pandemic period with real GDP and private confidence deteriorating,” the chief economist with the bank suggests.
However, he also noted the disappointing response from Thailand since the pandemic downturn. On a table of 189 economies, Thailand comes in at number 162.
EIC report compares Thailand’s economic future to Japan’s lost decade with extremely worrying implications
In particular, however, the comparison between Thailand and Japan is worryingly similar. “We compared the onset of Japan’s lost decade with Thailand’s post-pandemic economy and found a similar pattern. This is quite worrying,” he said.
In effect, Thailand is facing an extended period of economic stagnation.
The report suggests that this may last until 2050. However, it may well prove optimistic given what is happening in Japan.
Of course, in one respect, Thailand is quite different from Japan. It has not succeeded in becoming a fully developed or wealthy economy. This means Thailand’s problems are particularly acute.
With household debt hovering at 91% of GDP, the kingdom is presently mired in a liquidity crisis. Moreover, efforts by the central bank to deal with the problem this year have not made significant inroads.
Thailand’s economy is stymied by Red Tape, Corruption and insufficient growth solutions at this time
In brief, the economy has failed to grow while the pressure to borrow or have credit extended is overwhelming.
While the government’s Digital Wallet programme is designed to help, it will certainly only have transitory effects.
In effect, the government is raising money from financial markets. Here it is ฿450 billion, adding to the public debt and distributing it to a cash-starved population.
Finally, in the end, all that will be achieved, after all the fanfare and hoopla, is a weakening of the country’s finances.
In addition, rampant corruption which thrives on bureaucratic red tape and hurdles is futher impeding growth. Not to mention the lost labour which becomes engrossed in such unproductive processes.
In the meantime, as with Japan in the late 80s, the current financial storm hitting Thailand is impacting its firms.
On the one hand, small and medium-sized manufacturers are being hit by dumping from China while large firms are suffering from a liquidity squeeze.
Thailand faces capital outflows and moderate challenges in credit-driven expansion of its very large firms
In short, capital is flowing out of Thailand. In addition, Thailand’s banks are prioritising asset quality over asset expansion.
Large firms facing a need for credit-driven expansion are facing challenges.
At the same time, Thailand’s stock market, the Stock Exchange of Thailand (SET), has suffered a severe reversal in the last year. In summary, it has lost 14.26% since last year and is down 7.26% year to date.
Significantly, the situation has improved in the last week. There is some hope the era of record-high US interest rates may be coming to an end. In that situation, investment may flow east again.
Nonetheless, many large Thai firms and indeed banks are now looking to Southeast Asia for growth.
They are moving their focus out of the kingdom. In particular, to fellow ASEAN countries with younger populations. Indeed others are expanding in Europe and the United States.
Thai Bond market remains sound in 2024 despite some lower-rated firms failing to make repayments in 2023
Amid concerns over the economy, the Thai bond market remains sound despite the failure of a number of low-investment grade firms to make repayments in 2023.
Maybank Securities in Kuala Lumpur at the beginning of the year noted that only 6.5% of the Thai bond market is on non-investment grades with only 10% rated BBB-, BBB+ and BB+ segments.
Central bank: the corporate bond market is sound but the economy needs long-term structural reform
Government closely monitoring Thailand’s corporate sector bond market. Fears of a pending crisis
Indeed, the market has excess liquidity with ฿4.4 trillion held in bonds.
Many large firms, including conglomerates, were able to renew financing this year as well as some new issues. Certainly, last year there had been concerns which have now been allayed.
Normal households and small business concerns in Thailand are still struggling, even more so post-pandemic
In the meantime, this leaves a layered economy where normal households and small business concerns are still feeling the pinch.
In 2023, 41% of Thai households reported insufficient income.
Significantly, this was up sharply from 32% in 2021. Notably, this shows that the situation has worsened after the pandemic.
At the same time, small and medium-sized enterprises also reported difficulties making ends meet. This saw a 5% rise from 2021 to 2022.
In short, the EIC report this week concluded that Thailand could be looking at up to 30 years of weaker economic growth. Economic analysts have furthermore noted that the trend of lower interest rates is linked to falling population counts.
In short, less labour and impetus to drive the economy.
Thailand relies on Foreign Tourism to prop up its economy amid declining GDP prospects but this is limited
Thailand is certainly witnessing the same trend. As with Japan, there is the very real prospect of Thailand’s GDP eventually going into decline.
At this time, Thailand has been left to depend on foreign tourism to support its growth. However, we now see throughout the globe an inevitable friction that develops with overtourism.
In effect, the ability of Thailand’s ailing and declining economy to cover up for its workforce decline through foreign tourism is limited.
Japan’s GDP fell by 1.46% from 2021 to 2022. Certainly, the pandemic played a part in this. However, the 2021 figure was a 0.46% decline from 2020. This was in itself a 1.2% decline from 2019.
For 2023, GDP fell a further 1% from 2022. In 2024, Japan’s GDP is projected to fall by a further 2.4%.
Of course, there are stock market dynamics and financial effects. This would explain the 1.53% rise in GDP from 2018 to 2019.
Attracting high-quality inward immigration could help Thailand overcome its chronic economic challenges
In essence, some understanding and a cutting of slack must be granted to the present Thai government.
The United States economy has shown an ability to power forward through innovation, technology, and, in particular, immigration inflows.
Certainly, it may well be the case that attracting foreign immigration to Thailand on a vast scale may be the answer to the country’s economic ills.
Some Expat foreign residents face a base tax bill of up to ฿71k a year and must file a return by March 2025
Thailand’s July 15th visa revolution offers radical benefits for travellers to and from the Kingdom, with more to come
Undoubtedly, the present Thai government is already moving in that direction. The July 15th permanent measures on immigration are a result of this.
Thailand must attract talent from abroad to address its fast-declining population and acute economic stress
Looking forward, it may well see a change in Thailand’s landscape.
If it can attract more talent from the Western world, this may be an answer.
For instance, Thailand’s cost of living, its easy climate, and its cultural acceptance of non-nationals may offer an answer.
In the longer term, Thailand must also deal with its immigration outflows to better income and job prospects abroad.
At length, Western inflows may be limited in the decades ahead. They are likely to be supplanted by immigration from poorer countries in the economic south.
However, as Japan shows, declining populations and lower birth rates mean that the economy is still likely to be mired in a state of stress.
Indeed, as with Japan, the only real solution for the future of Thailand is to go beyond its cultural constraints and attract talent from abroad.
While there may be considerable opposition to this, it is time to think in broad terms about the future.
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Further reading:
Thailand’s days of GDP growth in excess of 5% may be a thing of the past as it has grown too old
Cabinet in pension move as the number of working Thais to over 60s is set to half in 20 years
Thailand’s new move to boost the birth rate and fight the negative impact of an ageing population
Denmark and Thailand seek economic partnership and face the same challenge – demographics
Thailand’s new move to boost the birth rate and fight the negative impact of an ageing population
BCG economic and social blueprint over the next 5 years unveiled, promises more money for less
Noble spirit of Thailand’s elderly helps country deal with demographic problem
