Thailand’s potential economic growth is expected to be the lowest in the ASEAN region over the next 20 years, according to the World Bank.
Key Takeaways
- Thailand’s potential economic growth over the next 20 years is projected to be the lowest among ASEAN economies due to ageing demographics, decreased private investment, and reduced labor productivity.
- To improve long-term growth potential, Thailand needs structural reforms focused on investing in human capital, education, health, climate change adaptation, tax reform, and promoting foreign direct investment in innovative and environmentally-friendly sectors.
- With targeted social assistance, improved public spending efficiency, and increased tax revenue, Thailand can strengthen its potential growth to 4-5% per year in the long term while addressing welfare, poverty alleviation, and fiscal sustainability.
Thailand’s economy is projected to face a prolonged period of low growth over the next two decades, according to a recent report by the World Bank. The report cites several factors contributing to this slowdown, including an aging population, declining productivity growth, and increasing global competition.
The country’s aging population, declining private investment, and reduced labor productivity are contributing factors. The World Bank forecasts GDP growth of 3.2% and 3.1% for 2024 and 2025 respectively, the lowest among ASEAN countries.
The International Monetary Fund (IMF) predicts that public healthcare expenditure will increase from 2.9% of GDP in 2017 to 4.9% of GDP in 2060 due to aging, leading to a rise in long-term aged care and healthcare costs.
In the medium term, as the economy recovers, Thailand should focus on a more targeted social assistance and transfers, especially the Old Age Allowance to effectively address welfare and poverty alleviation.
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Aging population will result in higher spending needs
Thailand’s population is rapidly aging, with the number of people over the age of 65 expected to increase from 10% to 20% by 2040. This demographic shift will lead to a shrinking labor force and a reduced pool of skilled workers, both of which will weigh on economic growth.
The aging population will result in higher spending needs, particularly due to the increase in public pension and healthcare costs. It is projected that the combined fiscal costs of the Civil Servant Pension, the Social Security Fund, and the Old Age Allowance will rise from 1.4% of GDP in 2017 to 5.6% in 2060.
Thailand’s heavy reliance on tourism
Thailand’s heavy reliance on tourism, which contributes 13% of GDP, has also impacted its recovery from the global headwinds caused by the pandemic.
To improve long-term growth, the World Bank recommends structural reforms, including investment in human capital, education, health, climate change adaptation, and tax reform. Targeted social assistance, improved public spending efficiency, and promoting foreign direct investment in innovative sectors are also suggested.
Thailand’s 2020 Human Capital Index (HCI) of 0.61 indicates that the future productivity of a child born today will be 39% below what could have been achieved with complete education and full health.
Low productivity growth
In addition, Thailand’s productivity growth has been declining in recent years, due to factors such as a lack of investment in research and development, inadequate infrastructure, and rigid labor regulations. This decline in productivity growth has made it difficult for Thailand to compete with other countries in the region that are experiencing faster economic growth.
Finally, Thailand is facing increasing competition from other countries in the region, particularly Vietnam and Indonesia. These countries have been able to attract foreign investment and boost their exports, while Thailand has struggled to keep pace.
The World Bank report projects that Thailand’s economy will grow by an average of only 2.8% per year over the next two decades, well below the growth rates of other countries in the region. This slowdown will have a significant impact on Thailand’s economy, leading to higher unemployment, lower incomes, and increased poverty.
