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Country Report Thailand

Country Report


Thai flag

Thailand's economy grew robustly last year, but concerns about asset bubbles are emerging. Thanks to prime minister Shinawatra's cautious policies regarding the return of her exiled brother Thaksin, tensions between royalists and his supporters calmed down, but remain present.

Strengths and weaknesses


Well-diversified and competitive economic base

The Thai economy comprises various large economic sectors, which increase its resilience to external and domestic shocks.

Strong external position

Thanks to stable current account surpluses, Thailand has ample and increasing foreign exchange reserves that cover about 8 months of imports. Foreign debt and associated payments are low.


Lingering political instability

Thailand’s population remains deeply divided between the country’s urban administrative and military elite (Yellow Shirts) and the mainly rural less affluent classes (Red Shirts) who mostly support former prime-minister Thaksin Shinawatra.

Low income levels and marked income inequality across regions

Thailand’s GDP per capita of USD 5,000 is low and its unequal distribution between rural and urban areas contributes to lingering tensions between the elite and the less-affluent parts of the population. 

Key developments

1. Strong stimulus-driven post-flood economic growth expected to normalize

Following its flood-driven stagnation in 2011, Thailand's economy expanded by 6.4% last year on the back of strongly growing private consumption and investments. Private consumption was boosted by higher average earnings, that were partly driven by both the government's rice price support scheme and its sizeable increase of the minimum wage, which also pushed up salaries of other workers given the tightness of the Thai labor market. Moreover, a tax-rebate for first-time car buyers contributed to the almost-doubling of car sales. Strong domestic demand also contributed to the rise in private investment, as producers increased production capacity to meet domestic demand. Moreover, post-flood repairs and ongoing efforts to replace increasingly expensive labor by machinery drove private investment growth.

Figure 1: Economic growth normalizes
Figure 1: Economic growth normalizesSource: Bank of Thailand, Reuters Ecowin
Figure 2: Emerging bubbles?
Figure 1: Economic growth normalizes	Figure 2: Emerging bubbles?Source: Bank of Thailand, Bloomberg

Reflecting the associated rise in capital goods imports and sluggish demand for exports, the contribution to growth of net exports remained negative. In sharp contrast, tourist arrivals increased to 22.5m, up from 19.2m and 15.9m in 2011 and 2010, respectively. Going forward, economic growth is expected to cool markedly, as government stimulus measures like the first-time car buyer tax rebate expire. In 2013 and 2014, economic growth of about 4% is expected, based on slowing private consumption and investment growth.

2. Rising concerns about emerging bubbles

Even though, at first glance, Thailand's strong economic growth in 2012 suggests a healthy recovery from its devastating floods a year before, rising asset-prices and stimulus-driven debt build-ups have raised concerns among investors and policymakers about emerging bubbles. In this respect, the strong inflow of portfolio investments into the country's stock and bond markets, as well as major increases in household loans are worrisome (see Figure 2). As far as the former is concerned, the Chairman of the Bank of Thailand board Virabongsa Ramangkura warned against bursting asset price bubbles in late 2013, as Thailand's stock exchange index rose by 124% since January 2010. Moreover, given international investors' search for yield due to low interest rates in Western economies and sizeable Japanese monetary stimulus, additional strong inflows into the Thai economy are likely. Such a development would further inflate asset prices and increase the local economy's exposure to a sudden withdrawal of funds. Meanwhile, Thailand's commercial banks seem to be concerned about an emerging credit bubble, as household debt, primarily car loans and mortgages, increased steeply in recent years. Similar to Thailand's largest lender Bangkok Bank, which raised its loan loss reserve coverage to 203% of non-performing loans in Q1 2013, various banks increased their buffers for rising credit losses. Following the marked increase in consumer loans, particularly car loans on the back of the government's tax rebate scheme for first time buyers, the banks' proactive cautious provisioning policies are certainly welcome

3. Massive infrastructure investment plan

Thailand's government presented a USD 71bn (20% of GDP) public infrastructure investment plan in April 2013, that should open up economically remote areas of the country and reduce transport times for passengers and freight. The plan foresees the upgrade of highways and seaports, the extension of existing railway lines to dual track, and the construction of four high-speed railway lines. Additionally, USD 11.9bn (3.3% of GDP) will be invested into post-flood water-management and the improvement of irrigation systems. The public infrastructure investment plan will be financed outside of the national budget on a project-by-project basis, which should insulate its implementation against possible political upheaval. While improving Thailand's potential growth, these investments could possibly raise Thailand's public-debt to GDP ratio to up to 60% of GDP in the coming years.

4. Gradual de-escalation of lingering political divide between Red Shirts and Yellow Shirts

Thailand's social climate remains characterized by a deep divide between the followers of former prime minister Thaksin Shinawatra (Red Shirts), who was ousted by a military coup in 2006, and the country's administrative and military elite (Yellow Shirts). Tensions between both groups have moderated in recent months, however, as current prime minister Yingluck Shinawatra (Thaksin's sister) has been careful not to incite renewed tensions. Moreover, the recent public appearance of King Bhumibol, a major reconciliatory figure who has been in hospital since 2009, contributed to the de-escalation. Still, recently started trials against both former prime minister Abhisit Vejjajiva, who ordered the military crackdown of the 2010 protests and several protesters could lead to re-erupting tensions, as would an amnesty that would enable Thaksin to return to Thailand.

National facts of Thailand
National facts of ThailandSource: EIU, CIA World Factbook, UN, World Economic Forum, Transparency International, Reporters Without Borders, World Bank.

Background information

Thailand ranks among the more developed economies of South-East Asia and, thanks to its attractive business climate, has become a major destination for foreign investment in the region. Even though the country’s nominal GDP of USD 366bn (2012) and nominal GDP per capita at PPP of USD 9,474 of its 68-million strong population are still relatively low, the Thai economy is highly diversified. While tourism constitutes a major source of foreign exchange earnings, hosting almost 23m tourists last year, the country’s strong manufacturing sector generates a sizeable structural trade surplus. The sector produces a broad variety of goods, ranging from machinery and electrical appliances to cars. While manufactured goods constitute more than 60% of Thailand’s exports, its still sizeable agricultural sector, which ranks among the world’s largest rice producers, generates about 10% of total exports. Thailand’s external position is strong, as foreign debt remains low at about 20% of GDP and foreign exchange reserves covered about 300% of debt service costs. In contrast to its strong economic base, Thailand’s social situation is relatively tense, as economic development could not bridge a marked divide in incomes between the rural and urban population. On the political stage, this problem has led to the creation of two political camps, the so-called Yellow Shirts supporting the administrative and military elite, and the less-affluent Red Shirts who support ousted prime minister Thaksin Shinawatra. Given a history of 18 coups since 1932, the country’s military stands ready to intervene if deemed necessary. Against this background, Thailand’s widely-respected 85 year-old King Bhumibol fulfills an important reconciliatory function. 

Economic indicators of Thailand
Economic indicators of ThailandSource: EIU
Fabian Briegel
RaboResearch Global Economics & Markets Rabobank KEO
+31 88 726 7864

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