THAILAND’S ECONOMY

WHAT LIES AHEAD?

KIRIDA BHAOPICHITR

SENIOR ECONOMIST

1

16 June 2015

Where is Thailand today?

2

GNI per Capita levels per year (World Bank Atlas Method, Current US$ as of 2013)

Source: World Bank

0

34

1,045 12,746

50

4,125

55

LOW

LOWER-MIDDLE UPPER MIDDLE

HIGH

•Cambodia (950)

•Nepal (730)

• Philippines (3,270)

•Myanmar

• Thailand (5,370)

• Lao PDR (1,460)

• Malaysia (10,400)

• Vietnam (1,730)

• China (5,560) • Indonesia (3.580)

75

• S. Korea (25,920)

• USA (53,670)

• Singapore (54,040)

• UK (39,140)

• Japan (46,140)

• Norway (102,610)

• Mexico (9,640)

• Brazil (11,690)

GNI per Capita per year

In 2015, real GDP is forecast to grow up to 3.5%

3

0.6

3.7

3.1

13.1

1.0

17.8

3.2

8.8

3.5

0 5 10 15 20

Private Con

Gov Con

Private Inv

Public Inv

Export goods (volume)

Export Services

Import Goods

Import Services (volume)

GDP

Source: World Bank projections

Real GDP Growth, 2015 (%)

Opportunities for Thailand’s future growth

Lower oil prices

Greater investments/capital flows into East Asia

Greater Regional integration and openness (AEC & FTAs)

A bigger middle-income class, especially in China – higher purchasing power

4

Net Foreign Direct Investment (FDI)

in Thailand (Million US$)

Source: BOT and World Bank Calculation

-2,000

00

2,000

4,000

6,000

8,000

10,000

12,000

14,000

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

Japan

China

US

EU

ASEAN

Others

Total

Thailand is surrounded by fast-growing economies

5

0.7

3.5

4.0 4.5

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

2014 2015 2016 2017

Cambodia Indonesia Lao, PDR

Malaysia Philippines Thailand

Vietnam

Source: World Bank’, Global Economic Prospects (January, 2015)

Real GDP Growth (%)

-2,000

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

US

Japan

Hong Kong

Australia

EU

ASEAN

Others

Total

Thai Direct Investment Abroad

(Million US$)

Source: Bank of Thailand

Developing EAP will lead high-income and all developing regions in 2015

6

Note: SSA= SubSaharan Africa; SAS = South Asia; MENA = Middle East & North Africa; ECA = Eastern Europe & Central

Asia; LAC = Latin America & Caribbean

Source: World Bank’, Global Economic Prospects (January, 2015)

Forecasted Real GDP growth in 2015 (%year-on-year)

0

1

2

3

4

5

6

7

8

EAP SAS SSA ECA MENA LAC

perc

ent

The global economy continues to recover although slowly

Source: World Bank, Global Economic Prospects (GEP) (January 2015) and East Asia and Pacific Economic Update

(October 2014)

e = estimate; f = forecast

7

Real GDP Growth (%)

4.1

2.8 2.4 2.5 2.6

3.0 3.3

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

2010 2011 2012 2013e 2014f 2015f 2016f

High income

Developing economies

World

8

Challenges for Thai economy

Source: World Bank (Jan 2015)

http://go.worldbank.org/4ROCCIEQ50

World Rice & Rubber Prices

0.0

0.5

1.0

1.5

2.0

2.5

3.0

380

400

420

440

460

480

500

520

2013 2014 2015 2016 2017

Rub

ber

Ric

e

Rice, Thailand 5%($/MT)

Rubber, Malaysian($/kg)

• Softening of key agriculture prices e.g. rice and rubber

• Rise in interest rates after US

raises its rates

• Slow down in Chinese economy • Competition from of other

countries in East Asia, that are “catching up” with Thailand

• Thailand is aging

China’s economic growth will be slower

9

2

3

4

5

6

7

8

2012 2013e 2014f 2015f 2016f

China

East Asia and Pacific

India

Source: World Bank, Global Economic Prospects (GEP) (January 2015) and East Asia and Pacific Economic Update

(October 2014); e = estimate; f = forecast

Real GDP Growth (%)

0

10

20

30

40

50

60

70

1995-2010

2011-15 2016-20 2012-25 2025-30

Investment/GDP ratio Consumption/GDP ratio

Source: World Bank, China 2030 (2012)

Share in China’s Real GDP (%),

1995-2030

China’s economic structure will be different as it rebalances

0

5

10

15

20

25

30

35

40

45

50

Primary IndustryServicesPrimary IndustryServices

Production Employment

2010 2030

China’s Production and Employment

Shares (%), 2010 & 2030

10

Can Thailand escape the Middle Income Trap?

11

Thailand will have to grow much faster to escape

the “Middle Income Trap”

Source: World Bank, World Development Indicators

$0

$5,000

$10,000

$15,000

$20,000

$25,000

197

8

198

0

198

2

198

4

198

6

198

8

199

0

199

2

199

4

199

6

199

8

200

0

200

2

200

4

200

6

200

8

201

0

201

2

GNI per capita (2000 constant USD)

China

Korea,Rep.

Malaysia

Thailand

-15

-10

-5

0

5

10

15

20

Q1/20

13

Q2/20

13

Q3/20

13

Q4/20

13

Q1/20

14

Q2/20

14

Q3/20

14

Q4/20

14

Q1/20

15

% Y

OY

Indonesia Philippines Vietnam

Malaysia Thailand

Improving export competitiveness is an important agenda for Thailand

Source: Comtrade, in US$ terms

* 12 Thai key export products accounting for 50% of total Thai

exports 12

Export growth of selected Asian countries

in Thai key export products* (%, average of each period)

Export growth of selected ASEAN

countries, 2013-2015

2.7

-12.1

4.3

9.6

3.0

9.4

12.5

8.8

23.8

15.3

1.2

26.2

21.3

11.6

-15 -10 -5 0 5 10 15 20 25 30

Thailand

Indonesia

Malaysia

Phillipines

Vietnam

India

China2009-11

2012-13

Source: CEIC, in US$ terms

12

Indicators show Thailand’s competitiveness has declined, particularly in labor market efficiency

Change in Global Competiveness Index Rankings from 2008 to 2015

(Negative means rank in 2015 is lower than that in 2008)

Source: WEF, Global Competitive Index

Note: Figures in ( ) are Thailand’s rankings in 2015 out of 144 economies 13

-55

-31

-13

-3

-80 -60 -40 -20 0 20 40

Labor market efficiency

Innovation

Institution

Global Competitiveness Index

Thailand Vietnam Philippines Malaysia Indonesia

(84)

(67)

(66)

(31)

13

-10

-5

0

5

10

15

20

25

30

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

Perc

ent

Thailand Philippines Vietnam

China Indonesia

Thailand’s wage competitiveness (adjusted for labor productivity growth) has been declining in

recent years

14

Source: World Development Indicators

Note: 2014 data for China is unavailable

Figures in ( ) next to country names are average values for 2011-2014for the country

Nominal labor productivity growth (%) minus Wage growth (%)

(Higher bar means more competitive)

Source: World Development Indicators

Nominal labor productivity growth of selected E. Asian countries (%)

-18

-15

-12

-9

-6

-3

0

3

6

9

12

2011 2012 2013 2014

Perc

enta

ge-p

oin

ts

Thailand (-4.7) Indonesia (-6.5)

Philippines (3.4) Vietnam (-3.2)

China (3.6)

14

Labor productivity has been growing slowly in the labor-intensive agriculture and construction sectors

Real Labor productivity index (2001=100)

Source: BOT

118.6

152.2

89.0

136.5

40

60

80

100

120

140

160

180

200

220

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

Agriculture

Manufacturing

Construction

Hotels&restaurants

Transport,storage,&communications

Financialintermediation

Total

In 2014, agriculture & construction sectors together

employed almost 40% of labor force.

15

15

8.3

5.8

38.1

47.8

Agriculture

Others

Manufacturing

Services

Service sector could be a future engine of growth as Thailand ages

16

Share of Real GDP (%), 2013 Share of Employment (%), 2013

39.6

0.7 14.0

45.7

Raising the quality of education in villages and towns from which workers in most labor intensive sectors are from will help increase

their productivity & mobility to high productivity sectors

360

380

400

420

440

460

480

500

Village SmallTown

Town City Large City

Reading Mathematics Science

Mean Score in PISA 2012

Source: Program for International Student Assessment (PISA), OECD 17

0

100

200

300

400

500

600

700

Tokyo(Japan)

Seoul(Korea)

Shanghai(China)

Jakata(Indonesia)

KualaLumpur

(Malaysia)

Bangkok(Thailand)

RuralAreas

Vietnam

Hanoi(Vietnam)

Reading Mathematics Science

17

Access to better education and jobs will help reduce income inequality

18

0

10

20

30

40

50

60

1985 2009 1984 2005 1992 2008 1981 2007 1994 2008 1993 2008 1990 2010 1984 2010

Philippines Indonesia Lao China Cambodia Vietnam Thailand Malaysia

Increasing inequality Constant inequality Decreasing inequality

Source: World Bank, World Development Indicators

Gini coefficients (Income)

Thank You

All World Bank data and reports

can be downloaded at

www.worldbank.org

www.facebook.com/WorldbankThailand