Amro says risks to country’s growth potential still persist

Despite a nascent rebound, Thailand’s economy still faces risks that could prevent it from reaching its growth potential in both the short and long term, say economists, citing elevated household debt, the slow recovery in income among vulnerable segments, and the country’s close ties with China in trade and investment.
After recording economic growth of 1.9% in 2023, which fell short of expectations, the Thai economy is strengthening thanks to resilient private demand, a continuing recovery in tourism, and accelerated government budget disbursement.
Growth is expected to increase to 2.8% this year and 3.3% in 2025, attributed to accelerated government budget disbursement, including the digital wallet scheme, robust exports and the tourism revival, said the Asean+3 Macroeconomic Research Office (Amro).
“Tourism is expected to exceed pre-pandemic levels in 2025. Government spending is set to accelerate, with the revised digital wallet scheme set to lift short-term growth,” Amro’s economists said in its 2024 Annual Consultation Report on Thailand.
Headline inflation is projected to decline to 0.7% this year from 1.3% in 2023, attributed to energy subsidies and lower prices of food and other essentials. Inflation is expected to rise to 1.5% in 2025 as subsidies are gradually phased out and the economic recovery strengthens.
However, the Amro economists said short-term risks that could dampen growth prospects include potential export weakness, delays in government disbursement and weaker private investment. The high level of household debt and slow recovery in income among vulnerable segments could also pose challenges to consumption and banks’ asset quality.
“Over the longer term, Thailand faces a public debt sustainability risk and a persistent decline in growth potential. The failure to adapt to digital and decarbonisation trends could render key export sectors uncompetitive, potentially affecting a significant portion of exports in the coming years,” the Amro economists noted.
In the report, which was issued on Nov 26, Amro said policy priorities for the Thai government should include “securing macro-financial stability and rebuilding policy space in the medium term, as well as revitalising structural transformation for higher growth potential in the long term”.
There is room for additional monetary policy easing should economic growth continue to underperform baseline expectations, as the authorities are credited for their efforts to lower household debt and enhance credit guarantee mechanisms, said the Singapore-based think tank.
To realise higher long-term growth potential, revitalising economic transformation is key, said the office. This involves improving agricultural productivity, accelerating labour movement from agriculture to more productive sectors, shifting manufacturing towards new growth engines, and unleashing the service sector’s potential through infrastructure upgrades, according to Amro.
The office suggests Thailand could reach high-income status in 2050 based on the current trajectory. With bold reforms and effective implementation of development plans to lift potential growth, Thailand can achieve high income status by the early 2040s, noted Amro.
Meanwhile, Kuala Lumpur-based Maybank Investment Banking Group said evolving economic ties with China present challenges for Thai policymakers. Beijing’s industrial leadership in certain areas poses existential challenges for regional economies whose economic structure overlaps with China’s.
In addition, rising global trade tensions may result in high volumes of Chinese products being directed to neighbouring markets, jeopardising both the domestic and export market shares of local players, said the bank.
The authorities need to strike a delicate balance between protecting domestic firms and jobs and establishing mutually beneficial ties with Chinese firms, noted Maybank.