Thailand outperforms most of emerging and developing Asia on measures of creditworthiness, business climate and per capita incomes. But GDP growth lags. Longer-term structural challenges related to an ageing society and labour skills shortages, alongside political risks, weigh on Thailand’s growth potential relative to emerging Asian peers. The COVID-19 pandemic and its associated impacts on Thailand’s large tourism industry hit the economy hard.
The above chart is a cobweb diagram showing how a country measures up on four important dimensions of economic performance—per capita income, annual GDP growth, business climate rank and creditworthiness. Per capita income is in current US dollars. Annual GDP growth is the five-year average forecast between 2022 and 2026. Business climate is measured by the World Bank’s latest Ease of Doing Business ranking of 190 countries. Creditworthiness attempts to measure a country's ability to honour its external debt obligations and is measured by its OECD country credit risk rating. The chart shows not only how a country performs on the four dimensions, but how it measures up against other countries in the region.
After suffering severely from the COVID-19 pandemic, real GDP began a slow recovery in 2021. Real GDP grew 1.6% in 2021. Exports supported growth, reflecting strength in global demand. Fiscal support helped shore up consumption. But tourism (which accounts for about 20% of GDP) remained weak in 2021, despite the reopening of international borders. The IMF expects growth to pick up to 4.1% in 2022, supported by increasing consumption, continued recovery in tourism and ongoing solid exports. However, more limited fiscal support and uncertainty around the path of the pandemic remain key risks to the outlook.
Beyond the pandemic, Thailand’s 20-Year National Strategy (2017–2036) will continue to underpin the government’s strategy to lifting growth beyond the pandemic. A cornerstone of this initiative is ongoing implementation of projects in the flagship US$50 billion Eastern Economic Corridor (about 10% of GDP), which should support a pick-up in private and public investment.
Greater infrastructure development should aid foreign investment and enhance the international competitiveness of high-potential industries, including next generation automobiles and artificial intelligence. But an ageing society, moderate competitiveness and labour skills shortages, if left unaddressed, will weigh on economic growth potential over time. The potential for political tensions and protests remain ongoing risks to business confidence, foreign investment and the broader economic recovery.
Thailand’s per-capita GDP is above the emerging Asian average, but below neighbours such as Singapore, Brunei and Malaysia. The IMF estimates GDP per capita of around US$8,000 in 2021, and expects incomes to reach about US$10,500 by 2026. Authorities’ plans to raise investment in infrastructure, education and training, if effectively implemented, can help Thailand expand production in higher-value added industries and lift productivity and household incomes.
Country risk in Thailand is low to moderate. The OECD has a country credit grade of 3; comparable with the Philippines, India and Indonesia. This indicates a relatively low to moderate likelihood that Thailand will be unable and/or unwilling to meet its external debt obligations. That said, individual private and sub-sovereign debtors can and do default.
The World Bank’s ease of doing business gauge ranks Thailand 21st out of a possible 190 economies. That is significantly better than the average emerging and developing Asian rating of 95. But Thailand remains less competitive than neighbours Malaysia (ranked 12th) and Singapore (2nd) in part because of gaps in educational outcomes and labour skills shortages.
Risk of expropriation in Thailand is moderate to high. According to the US investment climate statements, Thai laws provide guarantees regarding protection from expropriation without compensation and non-discrimination for some, but not all, investors. Thailand allows the government to carry out expropriation for the purpose of promoting public interest, with reasonable compensation being offered to the expropriated private party.
Political risk is moderate. Some political uncertainty remains, given a large and diverse mix of political parties in the ruling coalition and lingering tensions between the government and opposition parties. Moreover, student protests continue to flare from time to time. There remains some risk that domestic political stress and civil unrest could impinge on the effectiveness of policymaking, foreign investment and the economic recovery. Risk of political violence remains prominent because of Thailand’s long history of military coups.
Governance indicators are broadly stronger than most other emerging Asian economies, except for political stability/absence of violence and voice and accountability. Thailand has a demonstrated track record of transparent and predictable fiscal and monetary policies that have maintained economic and financial stability through political cycles.
Thailand was Australia’s tenth largest trading partner in 2020, making up 2.5% of Australia’s total trade. The COVID-19 pandemic disrupted bilateral trade over the past couple of years. Thailand remains an important trading partner. More than 3,000 Australian businesses export to Thailand and around 200 have an on the ground presence.
Exports of goods amounted to $4 billion in 2020, down from about $4.5 billion in 2019, consisting mostly of coal, natural gas, wheat, barley, copper and aluminium. Beyond the pandemic, Australian agriculture and consumer-oriented exporters could benefit from the strong growth in Thailand’s e-commerce market and fast-growing retail food sector. For instance, Thai demand for premium Australian food products across all major categories including gourmet and artisan foods, healthy and lifestyle foods is on the rise. Thailand’s plans to develop railways, roads and port infrastructure also offers opportunities for Australian exporters of energy, transport, telecommunications and mining services and equipment.
Goods imports from Thailand have remained above $14 billion every year since 2016. Goods imports are dominated by passenger motor vehicles, gold, heating and cooling equipment, household equipment and seafood.
The COVID-19 pandemic and associated international travel restrictions has hurt services trade over the past two years. The ongoing pandemic points to another year of uncertainty for services exports in 2022.
Thailand should continue to be a major source of international students and tourism for Australia. There are more than 200 university partnerships between respective institutions. Australia received more than 100,000 tourist arrivals from Thailand prior to the pandemic in 2019.
Beyond the pandemic, Thailand’s plan to raise education outcomes and upskill its labour force opens to strong opportunities for Australian education, training, upskilling and reskilling programs. An estimated 24 million workers are expected to enter the Thai workforce over the next 15 years. Meanwhile, Thai demand for Australian tourism should recover as Thai incomes rise and international border restrictions ease.
Thai investment in Australia is quite small but has been growing at a steady rate over the past decade across many areas, including energy and resources, tourism infrastructure and agribusiness.
Australian investment in Thailand is similarly small and is largely in the automotive, logistics, advanced manufacturing, technology and services industries.