pacific money | Economy | Southeast Asia
The country’s economy remains highly dependent on foreign demand for goods and services.
Thailand’s GDP figures for 2022 have been counted, and they were below expectations with the economy. growing 2.6 percent after adjusting for inflation. This is an improvement over the pandemic era, when GDP was contracting but still below projections. When the Bank of Thailand raised interest rates in November 2022, I was forecasting a growth of 3.2 percent for the year.
Policymakers expected the economy to enter 2023 with some momentum, but growth actually hired in the fourth quarter 2022. GDP underperformed other economies in the region, such as Indonesia and Malaysia, which experienced strong growth in 2022 driven by booming commodity exports and consumption peaks. He Philippine economy grew 7.6 percent. Why is Thailand’s economy not as good as its neighbors?
For one thing, more than most countries in the region, the Thai economy is based on exports. This means exports of services, such as tourism, as well as exports of manufactured goods. Thailand doesn’t have a lot of natural resources available for export, so it can’t take advantage of big commodity booms the way resource-rich Malaysia and Indonesia can. Household consumption is also not a great driver of economic activity, and consumers have struggled to pick up the slack as the economy reopens.
This economic model imposes certain limitations. For better or worse, the economy is heavily dependent on foreign demand for goods and services. Export earnings are often recycled into large current account surpluses and foreign exchange reserves. It is not an economic structure that is optimized for wages or household consumption.
Given a different economic structure, household demand could offset some of the weakness in exports, but that doesn’t appear to be happening. He service production index it contracted from 2021 to 2022 and remains below its base year of 2016. Part of the strong 2022 growth story in the Philippines and elsewhere was a big rise in service sectors in response to rising consumer demand. But consumer spending in Thailand is already constrained by high household debt levels
Services exports, anchored by Thailand’s large tourism sector, they are recovering. Even so, it will probably be at least 2024 before these numbers approach pre-pandemic levels, when Thailand welcomed nearly 40 million inbound tourists and $57 billion in foreign exchange earnings from the sector. Historically, this has been one of Thailand’s main economic drivers, and it is likely to carry much more weight in 2023. The question is whether it will be enough.
It may not be, given the recent big slowdown in exported goods. If we look at the figures from year to year, a significant part of the drag on the Thai economy has been the rising cost of imported energy inputs such as fuel. But monthly trade figures show a clear slowdown in exports in the second half of the year. The total value of exported goods was 906 billion baht ($26.6 billion) in June 2022, but then began a steady decline before reaching 700 billion baht ($20.5 billion) in January of this year. This is something that Thailand’s export-dependent economy cannot easily absorb.
Expensive energy imports will not weigh on the economy this year in the same way as last year. But with consumer spending unlikely to take the brunt and services exports via tourism to regain some, but not all, of their pre-pandemic strength, it will be very important to watch what happens to exports this anus. The extent to which exports of tradable goods recover or continue to weaken will largely determine how the Thai economy fare in 2023.