OECD Economic Outlook, Volume 2024 Issue 1

Thailand

GDP is projected to grow by 2.7% in 2024 and 3.3% in 2025. Despite having lost some momentum in late 2023, private consumption, buoyed by fiscal measures, a strong labour market and declining inflation, is expected to remain robust, while investment will recover after a weak patch during 2023. A continued revival of international tourism is underpinning the steady recovery. However, weaker external demand for goods, particularly in key trading partners, could add to weakening competitiveness and reduce growth prospects.

Public debt increased rapidly during the pandemic and fiscal consolidation will be required, including by avoiding energy subsidies and broad temporary support measures while focusing on improvements in targeted, permanent support to vulnerable groups. Monetary policy should continue its neutral stance in light of solid near-term growth and upside risks to inflation. Competition remains limited across several sectors, holding back innovation and productivity. Improvements in education, training and active labour market policies would help youths and women better integrate into the labour market and boost the economy’s growth potential.

Activity is rebounding after a short contraction

Growth slowed to 1.9% in 2023, with a mild contraction of 0.6% quarter-on-quarter in the last quarter of the year amid declining investment and a marked contraction in the construction sector. The disbursement of public spending slowed amid a two-quarter delay in the approval of the budget, with negative repercussions for public investment and growth both in late 2023 and early 2024. Manufacturing production has been on a longstanding decline, but this decline is flattening out as private consumption gathers momentum. Consumer confidence is improving, temporarily boosted by personal income tax incentives in the first weeks of 2024.

Thailand: Activity and inflation indicators

1. One-year-ahead inflation expectations.

Source: CEIC; Bureau of Trade and Economic Indices; and Bank of Thailand.

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Thailand: Demand, output and prices

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Exports of both goods and services are gaining momentum after a soft patch in the second half of 2023. Goods exports have rebounded strongly, especially in agriculture and manufacturing, including electronics, in line with cyclical developments observed in other Asian electronics exporters. Tourism arrivals were up 59% in February relative to a year before, supported by the lifting of visa requirements for Chinese travellers. Current tourist inflows amount to 93% of pre-pandemic levels, suggesting room for a further rise in tourism.

Monetary policy should remain neutral, while fiscal policy has been expansionary

The monetary policy rate was last raised in September 2023 to 2.5%, reflecting only mild inflation and a more cautious approach than in other countries in Southeast Asia. As the economy is recovering strongly in the first half of 2024, this broadly neutral policy stance seems appropriate and is expected to be maintained in the near term. In light of the sharp declines in inflation to -0.5% year-on-year in March, below the 1%-3% target range, the current rate now seems high in real terms, but the case for possible monetary easing should be carefully weighed against inflationary risks from expansionary fiscal policy, higher freight costs related to geopolitical tensions, and currency developments. Fiscal policy has been expansionary, and announced one-off handouts with only weak targeting are expected to reinforce the expansionary stance. In the short run, however, there is a risk of further delays in the disbursement of the 2024 budget, which could lead to lower capital outlays.

Near-term growth prospects are strong

Annual GDP growth is expected to pick up to 2.7% in 2024. This reflects solid growth momentum on a quarterly basis and year-on-year growth exceeding 4% at the end of 2024, albeit somewhat masked by the statistical effects of the soft patch in late 2023. Annual growth is projected to reach 3.3% in 2025. Private consumption will be the main driver of growth, while a rebound in external demand is projected to bolster exports, allowing a small positive contribution of net exports to growth in 2025. High household debt, exceeding 90% of GDP, could limit future private consumption and weaken growth outcomes, as could further setbacks in the disbursement of public funds, including for investment.

Boosting productivity will be key to ensure sustainable growth

Rising public debt and solid growth call for fiscal consolidation. Mounting social demands, an ageing population and the green transition will add to spending pressures, suggesting a need for mobilising additional tax revenues, including by broadening tax bases. The efficiency of public spending could be enhanced by focusing on well‑targeted support to vulnerable groups rather than broad one-off handouts or energy subsidies. Structural impediments will continue to weigh on the economy’s growth potential, and boosting productivity growth will be key. Competition remains limited, requiring regulatory reforms to reduce entry barriers, especially for small and medium enterprises. These could boost both foreign and domestic investment. Stepping up education and active labour market policies, in particular for young people and women, and introducing more effective carbon pricing while promoting energy efficiency and renewable energies would help achieve a more inclusive and sustainable recovery.