# Structural Challenges Facing Thailand’s Economy: Analyzing the Causes Behind the Nation’s Long-Term GDP Growth Decline

- Link: https://www.thailand-business-news.com/china/298794-structural-challenges-facing-thailands-economy-analyzing-the-causes-behind-the-nations-long-term-gdp-growth-decline
- Published: 2026-04-08T03:10:00+07:00
- Author: Thailand Development Research Institute

Thailand’s post–COVID-19 economic recovery has been characterized by persistently
weak growth, averaging only 2.3 percent during 2022–2024—well below its pre-pandemic
performance and far from its historical peaks.

## Key Points

 * 📉 **Growth slowdown**: Thailand’s post-COVID recovery has been weak, averaging
   only 2.3% growth (2022–2024), far below historical peaks. This is seen as a structural,
   long-term decline rather than a temporary shock.
 * 👥 **Labor issues**: Aging population, early retirement, conscription, preventable
   deaths, and declining education quality reduce both labor supply and productivity.
 * 💰 **Capital & productivity**: Investment growth has slowed, and total factor
   productivity (TFP) gains have weakened, signaling declining fundamentals.
 * 🏛️ **Fiscal strain**: Rising public debt (61% of GDP) and persistent deficits
   risk credit downgrades, with populist policies adding pressure.
 * 🏠 **Household debt**: Exceptionally high for a developing economy (around 90%
   of GDP), constraining consumption and growth.
 * 🌍 **Exports & FDI**: Export competitiveness is eroding under new tariffs and
   trade conflicts. FDI is shifting from Japanese-led industries to Chinese firms
   and data centers, with fewer local spillovers.
 * ✈️ **Tourism**: Still below pre-pandemic levels, facing overcrowding, environmental
   issues, and stronger competition from regional peers.
 * 📲 **Services trade**: Imports of services (digital platforms, IT, streaming,
   etc.) are rising faster than exports, creating a negative balance.

This paper argues that the slowdown reflects not a temporary cyclical shock, but
a deepening structural deterioration in Thailand’s long-term growth potential. As
the second installment in a three-part analytical series, the study focuses on diagnosing
the key structural constraints that have contributed to Thailand’s sustained deceleration
in growth relative to regional peers.

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Using a combination of quantitative indicators and qualitative policy analysis, 
the paper examines ten core structural factors shaping Thailand’s growth dynamics:
labor, capital, total factor productivity, fiscal sustainability, household debt,
the goods-exporting sector, foreign direct investment, tourism, the services-importing
sector, and external threats.

The analysis reveals that weaknesses are broad-based and mutually reinforcing. Demographic
aging, early labor-force exit, and declining education quality are constraining 
labor supply and productivity. Sluggish investment and slowing total factor productivity
signal weakening growth fundamentals. At the same time, high household debt, limited
fiscal space, declining export competitiveness, changing patterns of foreign direct
investment, a stagnating tourism model, and a widening deficit in services trade
further undermine economic momentum. These challenges are compounded by rising exposure
to global trade fragmentation and climate-related risks.

Taken together, the findings suggest that Thailand’s growth engine is impaired across
multiple components rather than hindered by a single binding constraint. Each structural
area requires targeted policy interventions to stabilize and, collectively, revive
Thailand’s long-term growth trajectory.

## Introduction

In the aftermath of the COVID-19 pandemic, Thailand’s economic growth during the
period 2022–2024 averaged only around 2.3 percent, representing a marked slowdown
compared with the pre-COVID period (2010–2019), when average growth stood at approximately
3.2 percent. This deceleration should not be interpreted as a temporary cyclical
weakness. Rather, it reflects a deeper and more persistent deterioration in Thailand’s
long-term growth prospects. Historically, Thailand’s GDP growth peaked at an average
of 7.3 percent during 1993–1996, before declining to around 5.3 percent during 1999–
2007, and subsequently falling further in the pre-COVID decade. Looking ahead, long-
term projections suggest that Thailand’s growth rate will continue to decline steadily,
period by period, at least until 2080 (Bisonyabut & Tantisan, 2025).

The downward revision of Thailand’s GDP growth trajectory is therefore not unexpected
when viewed against the backdrop of the country’s accumulated structural challenges
and the limited success of past efforts to address them. What is striking, however,
is not merely the presence of these challenges, but their breadth and persistence.
Multiple structural weaknesses continue to weigh on economic performance, collectively
signaling a broad erosion of competitiveness. Thailand’s growth engine increasingly
resembles an economic system suffering from failures across multiple components,
rather than a single malfunctioning part.

This paper constitutes the second installment in a three-part series examining Thailand’s
prolonged economic slowdown through three complementary analytical lenses. The first
paper, published earlier, traced Thailand’s growth trajectory from its historical
peak to the present, demonstrating that the observed slowdown is fundamentally structural
and long-term in nature, with potentially severe consequences if left unaddressed.
Building on that foundation, this paper focuses on identifying the key structural
challenges that have contributed to Thailand’s persistently weak growth relative
to its regional peers. The third paper, forthcoming, will examine institutional 
constraints that have hindered effective reform, helping to explain why well-known
policy proposals have repeatedly failed to translate into meaningful and sustained
progress.

## Untangling Structural Challenges

To identify the underlying causes of Thailand’s long-term GDP projection decline,
this paper examines a set of core macroeconomic structural factors that together
form the backbone of the Thai economy. These include:

 * labor
 * capital,
 * total factor productivity,
 * fiscal sustainability,
 * household debt,
 * goods exporting sector,
 * foreign direct investment (FDI) sector,
 * tourism sector,
 * import services sector
 * external threats.

These structural components encompass both the supply side and the demand side of
the economy and represent the primary channels through which economic growth is 
generated in Thailand. Weaknesses in any one of these areas can constrain growth;
however, when multiple factors deteriorate simultaneously, their combined effects
can substantially depress long-term GDP performance.

For each structural factor, this study employs quantitative and/or qualitative analyses
to evaluate the extent to which it has supported or constrained Thailand’s economic
growth over time. Where appropriate, empirical evidence is complemented by institutional
and policy analysis to capture mechanisms that may not be fully observable in aggregate
data. Based on these assessments, policy recommendations are proposed for each factor
with the aim of mitigating structural constraints and improving Thailand’s long-
term growth potential.

## Findings

This section presents a detailed analysis of each structural factor, along with 
corresponding policy recommendations aimed at addressing identified weaknesses and
enhancing Thailand’s long-term economic performance.

### Labor

Labor employed in the agricultural, manufacturing, or service sectors directly contributes
to GDP by producing goods and services that add value to the economy. A key challenge
for this growth factor is demographic aging: as the population ages, the labor force
both shrinks and becomes older, thereby limiting its contribution to GDP growth.
Thailand currently faces several challenges related to this factor.

High-income economies typically counter labor-force shrinkage by extending the retirement
age. As shown in Figure 1, most high-income economies have an official retirement
age of around 65, while developing economies tend to maintain an official retirement
age closer to 60.

In Thailand, there is no formal retirement age for most workers, except for civil
servants, whose mandatory retirement age is 60. However, in practice, many workers
retire earlier—often around age 55—which coincides with the age at which individuals
become eligible to leave their jobs and receive pension benefits. More concerningly,
labor-force statistics (Figure 2) indicate that a significant number of workers 
exit the labor market as early as their early 50s (TDRI, 2025a).

In addition, Thailand loses part of its labor force through channels that are largely
avoidable. Three notable examples include:

 * Mandatory military conscription among young workers (Prachathai, 2019);
 * loss of life due to road accidents (approximately 16,000–20,000 fatalities per
   year, TDRI, 2025b); and
 * premature deaths related to climate-related incidents, including natural disasters(
   Kosako, 2025) and prolonged exposure to PM2.5 pollution (Hermayurisca & Taneepanichskul,
   2023).

Qualitative aspects further exacerbate the problem. Recent PISA test results (PISA,
2022) show that Thailand’s scores are below the OECD average and below those of 
peer economies such as China, Malaysia,and Vietnam. More importantly, the trend 
in Thailand’s educational performance has been declining over time.

In summary, population aging and labor-force shrinkage constitute major constraints
on GDP growth. These challenges are compounded by both quantitative losses of labor
and declining labor quality. Government policy should therefore focus on extending
working lives by raising the effective retirement age and keeping workers in the
labor market for as long as possible. At the same time, it should address labor 
leakage through mechanisms such as military conscription and preventable premature
deaths, while placing greater emphasis on improving labor quality.

### Capital

Capital refers to machinery and equipment used in the production of goods and services.
In Thailand, capital investment indicators have remained sluggish following the 
COVID-19 pandemic. According to the Bank of Thailand’s database, Business loan growth
declined from an average of 4.3% during 2015–2019 (pre-COVID) to just 2.3% between
2021–2024. Similarly, according to NESDC’s database, investment as a share of GDP
has grown more slowly, falling from an average growth rate of 2.9% to 1.7% over 
the same period. Notably, a strong investment cycle is typically characterized by
growth rates of around 3.5%–7% per year.

However, the decline in investment indicators should not be viewed as a standalone
problem to be addressed directly. Rather, it reflects deeper structural weaknesses,
particularly in foreign direct investment (FDI) and export performance, which will
be discussed in subsequent sections.

### Total Factor Productivity

Total factor productivity (TFP) measures how efficiently an economy transforms labor
and capital into output, capturing gains from technology, innovation, skills, and
organizational improvements beyond the mere accumulation of labor and capital. Based
on NESDC analysis, TFP accounted for approximately 50% of Thailand’s GDP growth 
during 2011–2024. However, a clear slowdown in TFP growth has been observed in the
post-COVID period. During 2015–2019, TFP growth averaged around 2.0% per year, but
following the COVID-19 shock, it declined to just 1.34% per year, signaling increasing
constraints on Thailand’s future growth potential (NESDC, 2025).

This trend underscores the urgent need to strengthen Thailand’s technology and innovation
system, including policies that support technological upgrading, technology transfer,
and the effective adoption of new technologies across firms and sectors.

### Fiscal Sustainability

Thailand’s post–COVID-19 GDP growth slowdown is very pronounced, but less widely
recognized is the fact that fiscal policy has already been stretched in supporting
the economy. The public debt-to-GDP ratio rose from an average of 41.8% during 2015–
2019 to 61.1% in the post-COVID period (2021–2024), and the current medium-term 
fiscal framework (Cabinet, 2025) projects the ratio to approach its statutory ceiling
of 70%. The IMF and international credit rating agencies have warned that Thailand
faces an increased risk of a sovereign credit downgrade, which would raise borrowing
costs for both the public and private sectors. This situation is not surprising,
as the government has operated under persistent fiscal deficits for more than two
decades, with the deficit widening from an average of −2.6% of GDP per year during
2015–2019 to −4.1% per year in the post-COVID period (2021–2024).

Looking ahead, the country faces heightened political risks arising from competition
between populist policy agendas and expanding welfare-state commitments, which could
further undermine fiscal discipline. Comprehensive fiscal reform is therefore essential
to safeguard Thailand’s long-term macroeconomic stability.

### Household Debt

Thailand is one of the countries with very high household debt. Notably, many countries
with high household debt are high-income economies (Ishak, 2026), such as Switzerland(
125% of GDP), Australia (112% of GDP), Canada (100% of GDP), and the Netherlands(
94% of GDP). In contrast, Thailand’s household-debt-to-GDP ratio is unusually high
for a developing economy, standing at around 84% of GDP before COVID-19 and rising
to around 90% after COVID-19. Among developing peers, Malaysia is the closest comparator,
with household debt of around 70% of GDP, which is still significantly lower than
Thailand’s level.

High household debt constrains economic growth through the consumption channel. 
Highly indebted households must allocate a large share of their income to debt repayment
before consumption, reducing aggregate demand. In addition, high debt burdens can
prevent households from expanding economic activities or investing to increase future
income, trapping some households in persistent vulnerability or poverty.

Household debt can be reduced gradually over time through economic growth (base-
effect reduction) and debt-restructuring or relief programs, typically offered by
lenders, the Bank of Thailand, and the government. However, such adjustment processes
often take a long time. Even so, targeted debt-support programs can generate positive
macroeconomic effects, as they help revive consumption and create multiplier effects
throughout the economy.

### Goods-Exporting Sector

Before this point, the factors discussed are primarily internal factors that serve
as the backbone of the economy. The remaining factors are external factors that 
inject income into the system, among which the goods-exporting sector plays a central
role. Based on Trademap database, during 2015–2019, Thailand accounted for roughly
1.3% of global exports. After COVID-19, this share declined slightly to 1.2% during
2021–2024.

Looking ahead, however, the global trade environment has changed markedly. The United
States has introduced reciprocal tariff measures that apply to a broad range of 
imported goods, under which Thailand faces a tariff rate of 19% (USTR, 2025). Although
this rate is broadly comparable to those imposed on competing exporting countries,
the tariffs nonetheless impose significant cost pressures that cannot be easily 
passed on to U.S. consumers.

Moreover, the emerging trade regime is increasingly shaped by strategic competition
between the United States and China, placing Thailand in a vulnerable intermediary
position. According to Trademap database, Thailand’s combined export share to the
U.S. and China increased from 23.2% during 2015–2019 to 29.3% during 2021–2024, 
while imports from these two countries rose from 27.3% to 30.8% over the same period.
This rising dependence heightens Thailand’s exposure to economic shocks arising 
from bilateral trade conflicts.

A clear example of this vulnerability is Thailand’s role as a transshipment hub 
for Chinese products. In 2025, the United States imposed final tariff rates on solar
panels and components originating from Thailand, ranging from approximately 375%
to 972%, significantly increasing the cost of Thai exports to the U.S. market.

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A new export enhancing strategy is therefore needed to protect the country under
this new global trade order and to guide the goods-exporting sector forward.

### Foreign Direct Investment

Foreign direct investment (FDI) has long served as a foreign-driven engine of investment
and growth for Thailand. Notably, Japanese investment in major industries—including
automotive, electrical appliances, and electronics—has not only generated large-
scale employment (including jobs in related and upstream industries) but has also
supported the development of local supply chains and contributed significantly to
the broader local economy.

In the post–COVID-19 period, however, the composition of FDI has begun to shift (
Suleesathira, 2025). Thailand has transitioned from an investment landscape dominated
by Japanese firms toward one increasingly shaped by Chinese conglomerates and data
center investments. These new forms of investment differ substantially from earlier
FDI patterns. First, Chinese firms tend to rely more heavily on their own workers
and supply chains, limiting spillovers to local labor and suppliers. Second, data
center investments fewer opportunities for local supply chain development.

As a result, although headline FDI inflows have continued to rise and recently reached
new record levels, it is unclear whether Thailand’s economy will benefit to a similar
extent as in the past. In practice, the primary beneficiaries may instead be industrial
estate developers and utility providers servicing these investments. Moreover, growing
competition for limited resources—particularly utilities—has emerged as an additional
concern, as new FDI projects may crowd out more labor-intensive and supply-chain-
rich forms of investment that have traditionally generated broader economic benefits.

A balanced approach is therefore required—one that carefully weighs the gains from
both traditional and new forms of FDI, while ensuring that Thai workers and local
supply chains remain integral parts of the investment equation.

### Tourism Sector

The tourism sector is a major contributor to Thailand’s GDP. At its peak in 2019,
Thailand welcomed nearly 40 million international visitors, with tourism contributing
around 10% of GDP (World Travel and Tourism Council, 2024).

However, even in 2025, the number of international visitors has not yet returned
to its 2019 level. Estimated arrivals remain at around 33–34 million visitors. Two
developments are particularly concerning.

First, Thailand continues to rely heavily on traditional tourism assets, including
mountains, beaches, sunshine, and cultural heritage sites. These strengths have 
long positioned Thailand as one of the world’s most visited destinations. Nevertheless,
after decades of offering largely similar experiences, many destinations now face
overcrowding, rising prices, environmental degradation, tourist scams, and “tourist
traps.” Policy choices have also contributed to these challenges, including the 
legalization of cannabis, which has affected Thailand’s tourism image in some markets.

Second, regional competitors have not remained static. Countries such as China, 
Japan, and Vietnam have actively upgraded and promoted their tourism sectors by 
introducing new attractions and differentiated experiences. Compounding these pressures,
the strength of the Thai baht has placed Thailand at a cost disadvantage, making
travel expenses approximately 4–10% higher than those of peer destinations.

To revitalize the tourism sector, it is imperative to reinvigorate the visitor experience.
Thailand must preserve the qualities that once defined its appeal—friendliness, 
hospitality, local character, and a sense of joy—while simultaneously developing
new sources of excitement, including well-designed man-made destinations, to compete
more effectively with regional peers.

### Services-Importing Sector

The services-importing sector functions as a leakage from the economy, capturing
expenditures by local residents on services provided outside the Thai economy. It
includes travel services, business services (trade-related, professional, and management
consulting), transport, financial services, government goods and services, telecommunications,
computer and information services, the use of intellectual property, construction
services, and insurance and pension services.

In analyzing the external services sector, it is useful to compare services imports
with services exports (Tables 1 and 2). During the periods 2015–2019 and 2021–2024,
a sharp contrast emerged between these two sectors. While the services-exporting
sector declined from an average of USD 70,297 million to USD 48,282 million, the
services-importing sector increased from an average of USD 48,898 million to USD
64,847 million.

As a result, Thailand has shifted into a negative external services balance vis-
à-vis the rest of the world. More disaggregated statistics show that Thailand’s 
major service exports are concentrated in travel, business services (primarily trade-
related), and transport, which together account for approximately 95 percent of 
total service exports. In contrast, service payments have been rising in transport,
business services, intellectual property rights, insurance and pension services,
financial services, telecommunications, computer and information services, and personal,
cultural, and recreational services. Looking ahead, the services-exporting sector
remains heavily dependent on relatively stagnant activities, namely travel (linked
to tourism), business services (linked to goods exports), and transport (linked 
to both tourism and goods exports)—all of which face limited growth prospects. Meanwhile,
services-importing sectors are growing rapidly in popularity among Thai consumers
and businesses, particularly in ride-hailing and food delivery, accommodation platforms,
e-commerce marketplaces, mobile app stores, streaming and digital content services,
and cloud and IT services. Without policy intervention, the negative balance in 
services trade is likely to widen further.

### External Threats

Last but not least, looking ahead, several external threats could have a significant
impact on the economy and overall GDP. One such threat is global warming. Climate-
related disasters not only cause premature deaths but also generate substantial 
economic losses. In recent years, Thailand has experienced an increasing number 
of extreme events, many of which have set new records. For example, the severe flooding
in Hat Yai was caused by an unprecedented rainstorm, the heaviest in more than 300
years (Pasutan, 2025). Similarly, the earthquake in 2025, which was clearly felt
in Bangkok. It is a once in a lifetime for most Bangkok’s residents.

Other catastrophic events, whether natural or man-made, cannot be ruled out in the
future. Countries that are well prepared for such shocks are better positioned to
preserve economic stability and protect their citizens from the unforeseen hardships
these events may impose. 

## Conclusion

   This article compiles empirical evidence and statistical data to diagnose Thailand’s
economic growth slowdown. The findings suggest that the deceleration is not driven
by a single factor, but rather by simultaneous deterioration across ten structural
dimensions, collectively producing a systemic weakness. This dynamic can be likened
to the human body, which may withstand isolated health issues to some extent, but
becomes critically ill when multiple conditions occur concurrently.

The article also outlines broad policy directions for addressing each structural
challenge, emphasizing that problem recognition and appropriate strategic orientation
are essential first steps toward effective reform. However, given space limitations,
the article does not provide detailed policy prescriptions for each area. More comprehensive
solutions are discussed in the referenced literature, alongside additional policy
proposals that have long been debated within academic and policy circles.

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Author: Nonarit Bisonyabut, Ph.D. and Sunan Phumkham.

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