9 December 2022

Country Economic Forecast | Thailand

Growth pickup in 2023 hinges on external constraints

◼ We are maintaining our 2023 GDP growth forecast for Thailand at 3.6%, slightly above our 2022
forecast of 3.3%, as monthly indicators support our baseline forecast. While domestic demand is
starting to soften, external balance is continuing to improve.

◼ We expect domestic demand momentum will continue to slow as the reopening boost fades.
Monthly private consumption and investment indices confirm our view. That said, domestic
private consumption still has room to recover from the trough during the coronavirus pandemic.

◼ External data paint a more promising picture. We continue to forecast a small current account
deficit of 0.4% of GDP in 2023, which is sharply narrower than our 2022 forecast of a 3.7% deficit.
Importantly, improving terms of trade thanks to declining oil prices will boost real income,
thereby supporting demand. Moreover, the improving external balance will provide greater
support for the Thai baht (THB), which will help to ease inflationary pressures.

◼ Against this backdrop, we think the Bank of Thailand (BoT) is nearing the end of its rate hiking
cycle. We now expect the BoT will raise the policy rate by another 25bps to 1.5% in Q1 2023, up
from 1.25% in our previous baseline, in line with our upward revision to our 2023 CPI inflation
forecast due to higher electricity charges. Thereafter, we think the central bank will pause to
assess the impact of recent rate hikes on the growth recovery.

◼ In terms of risks, a sharper global recession and ongoing geopolitical tensions could result in
tourism recovering more slowly than expected and energy prices staying higher for longer. China
remains a wildcard, with both upside and downside risks to our outlook. A rise in regional risk
premia triggered by protests in China would exert depreciation pressures on the THB, while an
orderly early reopening would enhance demand in China, with positive spill-overs to the region.

Table 1: Thailand forecast overview

(Annual percentage changes unless specified)
2020 2021 2022 2023 2024 2025
GDP -6.2 1.5 3.3 3.6 4.3 4.3
Domestic demand -1.3 5.8 1.4 0.8 3.6 2.8
Private consumption -1.0 0.3 6.4 3.0 4.2 4.3
Fixed investment -4.8 3.4 1.7 1.0 5.9 6.2
Government consumption 1.4 3.2 1.1 0.0 1.6 2.0
Exports of goods and services -19.7 10.4 8.9 3.3 9.6 9.8
Imports of goods and services -14.1 17.9 5.9 -0.7 8.8 7.9
Industrial production -9.8 6.0 1.8 0.7 4.7 7.0
Unemployment rate (%) 1.7 2.0 1.3 1.2 1.1 1.1
Government balance (% of GDP) -6.8 -5.5 -1.8 -2.8 -2.8 -2.8
Gross government debt (% of GDP) 40.3 50.0 53.5 52.6 51.1 47.1
Current a/c balance (% of GDP) 4.2 -2.0 -3.7 -0.4 1.2 3.2
Consumer prices -0.8 1.2 6.1 2.8 0.4 0.9
Cen. bank policy rate (%, EOP) 0.5 0.5 1.3 1.5 1.8 2.3
Exchange rate (Baht per US$, EOP) 30.0 33.4 36.1 34.7 32.3 30.6
Source: Oxford Economics

Sung Eun Jung - Senior Economist - sjung@oxfordeconomics.com

EMISPDF Honeywell_HGR from 155.190.3.5 on 2022-12-13 08:48:28 GMT. DownloadPDF.
Downloaded by Honeywell_HGR from 155.190.3.5 at 2022-12-13 08:48:28 GMT. EMIS. Unauthorized Distribution Prohibited.
Growth pickup in 2023 hinges on external constraints

erosion of households' purchasing power by

Forecast overview
Recent developments
Domestic demand continued to lead the growth
recovery in Q3 2022 thanks to the ongoing
domestic reopening boost. GDP growth picked
up to 4.5% y/y in Q3 from 2.5% in Q2, with
quarterly momentum also improving to 1.2% q/q
seasonally adjusted (sa) from 0.7%. Sequential
growth for private consumption eased to 1.3%
q/q sa from 1.7% in Q2. But domestic demand
inflation and tighter monetary conditions. The
post-lockdown reopening boost will also fade.
Still, with only a third of households having
variable rate loans (based on a BoT assessment in
2018), the aggregate impact on debt servicing
costs should be manageable. Moreover, the
improvement in the terms of trade due to lower
oil prices should support real income.
Chart 2: A mild pickup in growth in 2023
Thailand: Contribution to annual GDP growth
% year, ppt

still improved thanks to fixed investment gaining 9

further traction, rising 2.9% q/q sa after 6

contracting by 1.9% in Q2, as firms ramped up

3
purchases of machinery and equipment.
Meanwhile, public spending and net trade 0

continued to drag on quarterly growth. Stockbuilding

-3
Net trade
Fixed investment
Despite robust Q3 GDP, monthly data point to a -6 Public consumption
Private consumption
weak start to Q4. In three-month moving average GDP growth
Forecast
-9
(3mma) terms, sequential growth for consumer 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

activity, private investment, goods export

Source: Oxford Economics
volumes, and industrial production all slowed in
October (Chart 1). Goods import volumes also Key drivers of our short-term forecast
fell sharply, contracting 6.2% m/m 3mma in
October, as domestic demand weakened. Returning tourism remains a bright spot.
International tourists are returning, with arrivals
Chart 1: Sequential growth slowed for monthly rising to 1.5mn in October from 1.3mn in
activity indicators in October September. But tourist arrivals from January to
Thailand: Monthly indicators October 2022 are still only 22% of the
% month, 3mma Consumer activity index
15
Industrial production
corresponding period in 2019. Moreover, the
Private investment index recovery in tourism will be partial as long as
10 Goods export volumes
Chinese visitors are absent, and the pace of
5 recovery has weakened somewhat in recent
0
months (Chart 3).

-5 Chart 3: Tourism recovery will be partial

Thailand: Overseas visitors
-10
Persons mn
50
-15 Forecast
Total ex. China
2018 2019 2020 2021 2022
40
China
Source: Oxford Economics/Haver Analytics
30

Short-term outlook
20

We are maintaining our 2023 GDP growth

forecast at 3.6% and expect a 3.3% expansion in 10

2022 (Chart 2). We think net trade will add to

0
headline growth in 2023 as total exports increase 2018 2019 2020 2021 2022 2023 2024 2025

thanks to a rebound in services exports offsetting

Source: Oxford Economics
the contraction in goods exports. Meanwhile, we
expect domestic demand will cool due to the

Page 2 Sung Eun Jung - sjung@oxfordeconomics.com

EMISPDF Honeywell_HGR from 155.190.3.5 on 2022-12-13 08:48:28 GMT. DownloadPDF.
Downloaded by Honeywell_HGR from 155.190.3.5 at 2022-12-13 08:48:28 GMT. EMIS. Unauthorized Distribution Prohibited.
Growth pickup in 2023 hinges on external constraints
Global trade headwinds remain strong. We still
expect goods exports will drop further amid weak
global conditions, as evidenced by momentum in
export volumes deteriorating to -1.4% m/m
3mma in October from -0.7% in September.
Import volumes growth fell even more sharply to
-6.2% m/m 3mma from -2.5% in September, in
line with weakening momentum in domestic
demand. Meanwhile, services exports continued
to recover in Q3 amid a pickup in tourism, albeit
from very low levels. As global financial
conditions tighten further and global demand
weakens, we expect Thailand's total exports will
still grow but at a slower pace in 2023, with
services exports offsetting the fall in goods
exports. With weaker imports from lower
domestic demand, we forecast net exports will
add to growth next year.
The boost from pent-up demand is fading.
Private expenditure underperformed our
expectation in Q3 as domestic household
expenditure picked up at a slower pace and non-
resident spending (which is subtracted from
Thailand's private spending) continued to
increase at a fast pace. With the reopening boost
fading, households will face tighter budgetary
constraints as inflation squeezes real incomes
(Chart 4). Nevertheless, we think the return of
tourists will support the recovery in labour
income and sentiment. Moreover, improvement
in Thailand's terms of trade due to lower oil
prices should help limit the fall in real income.
Chart 4: Domestic demand will slow next year
Thailand: Consumption and investment
% year
25
20
Investment
15
10
5
0 6
-5
Consumption
-10
-15
-20
2001 2004 2007 2010 2013 2016
Source: Oxford Economics
A bumpy recovery in investment. Total
investment outperformed our expectation in Q3
as private investment bounced back strongly,
with firms ramping up purchases of machinery
Page 3 Sung Eun Jung - sjung@oxfordeconomics.com
EMISPDF Honeywell_HGR from 155.190.3.5 on 2022-12-13 08:48:28 GMT. DownloadPDF.
Downloaded by Honeywell_HGR from 155.190.3.5 at 2022-12-13 08:48:28 GMT. EMIS. Unauthorized Distribution Prohibited.
and equipment. But we think the momentum will
ease in the coming quarters with slowing exports
and souring sentiment, as evidenced by the
weakening momentum in the monthly private
investment index and capital goods imports.
Amid higher costs, some infrastructure projects
may also be delayed or cancelled. Still, strong
building approvals and public-private projects
will help sustain a large pipeline. After slower
investment growth in 2023, we still expect
investment will pick up in the coming years.
Inflation to stay above target until Q2 2023.
Inflation has exceeded the BoT’s 1%-3% inflation
target range since January 2022 due to higher
food and energy prices. While headline inflation
eased to 5.5% y/y in November from 6% in
October due to the recent correction in global
commodity prices, we expect inflation will remain
high at 5% in Q1 given still-elevated core
inflation. Though we anticipate inflation will
return to the target range starting in Q2, we have
raised our 2023 CPI inflation forecast by 0.4ppts
to 2.8% based on higher electricity charges.
Nearing the end of the policy rate cycle. After
delivering a total of 75bps of rate hikes in 2022,
we expect the central bank will raise the policy
rate by another 25bps to 1.5% in Q1 2023 given
the ongoing economic recovery and still-elevated
inflation. Our revised view incorporates one more
rate hike than previously thought, in line with an
upward revision to our 2023 inflation forecast.
Beyond Q1, we think the BoT will leave the policy
rate unchanged in 2023 as it assesses the impact
of recent hikes on the recovery (Chart 5).
Chart 5: An extended pause is likely after
another 25bps rate hike in Q1 2023
Thailand: Monetary conditions
8
Forecast
Inflation
(% year)
4 Policy
interest rate (%)
Forecast 2
2019 2022 2025
0
-2
-4
2001 2004 2007 2010 2013 2016 2019 2022 2025
Source: Oxford Economics
Growth pickup in 2023 hinges on external constraints

Economic risk domestic demand, while anti-government

protests could become more disruptive, thereby
Economic risk evaluation souring the upturn in sentiment and dampening
the nascent economic recovery.
Overall risk for Thailand: 4.4/10*
Chart 6: Thailand's risk score is better than the
Thailand's overall economic risk score of 4.4 is emerging markets average
moderate, ranking it 45th out of 164 countries Economic risk: Thailand vs Emerging markets average
and better than the Asia Pacific average of 5.3 Myanmar
(Chart 6). Cambodia E
India

Thailand's recovery from the pandemic has been Indonesia

Philippines
bumpy. GDP growth in 2021 was impacted by Thailand
periodic lockdowns to contain the coronavirus China

Delta variant. But amid rising vaccination rates Vietnam Emerging

markets
average
and a normalisation of activities, we expect a
Korea
Singapore
solid rebound in GDP and household spending in Taiwan

2022, with growth supported by rising numbers 0 2 4 6 8 10

of international visitors and accommodative Risk score, 10 = highest

macro policies. Beyond this, the economic Source: Oxford Economics

recovery will be gradual due to weak global
demand for exports. Moreover, Thailand’s
troubled domestic political situation remains a
downside risk.
Market demand: 4/10
The market demand risk score is moderate at 4
and well below the EM average of 5.8, reflecting
expectations that growth in Thailand's domestic
demand is likely to be reasonable following the
containment of the coronavirus pandemic.
However, high inflation will squeeze real earnings
and the deteriorating global economic backdrop
will weaken sentiment, thereby suppressing
domestic demand. Slower-than-expected delivery
of infrastructure projects would also dampen
Market cost: 4/10
At 4, the market cost risk score is below the EM
average of 5.8. Inflation has increased
substantially amid higher energy and food prices,
with a smaller buffer from fuel subsidies.
However, underlying demand pressures will
remain moderate given the large output gap and
labour market slack.
In comparison to regional peers, the BoT has not
tightened aggressively. It has raised the policy
rate by 75bps since August 2022 to 1.25%. We
expect one more 25bps rate hike to 1.5% in Q1
before an extended pause throughout 2023.
Rates will still be low compared to regional peers
given the extent of economic scarring.

Table 2: Economic Risk Index

Dec 2022 (Scores from 1 to Score change from Rank out of 164
10 with 10 = highest risk) June (1= lowest)
Overall 4.4 0.1 45
Market demand 4.0 0.0 27
Market cost 4.0 0.0 38
Exchange rate 4.3 0.3 80
Sovereign credit 4.7 0.1 71
Trade credit 5.0 0.0 39
Source: Oxford Economics

Page 4 Sung Eun Jung - sjung@oxfordeconomics.com

EMISPDF Honeywell_HGR from 155.190.3.5 on 2022-12-13 08:48:28 GMT. DownloadPDF.
Downloaded by Honeywell_HGR from 155.190.3.5 at 2022-12-13 08:48:28 GMT. EMIS. Unauthorized Distribution Prohibited.
Growth pickup in 2023 hinges on external constraints

Exchange rate: 4.3/10 Chart 7: Thailand's risk scores are below the
emerging markets averages
Thailand’s exchange rate risk is low at 4.3, below
Economic risk: Thailand vs Emerging markets average
the EM average of 5.1. This reflects the country’s Market
healthy external position, including a traditionally demand
10
large current account surplus prior to the 8

coronavirus pandemic, high foreign exchange 6

reserves, and low foreign debt. Trade credit

4
Market cost
2

The Thai baht depreciated by 11% against the US 0

Emerging markets average
dollar by end-2021 amid a rare current account Thailand

deficit and a sharp downgrade to 2021 GDP Thailand 6 months ago

growth forecasts. However, investors have turned Exchange Sovereign

rate credit
more positive about prospects following the
substantive easing of domestic and border Source: Oxford Economics
restrictions, which is limiting the fallout from
geopolitical tensions and expectations of * Risk scores are from 1 to 10, with 10
aggressive US rate hikes. The BoT also has representing the highest risk. For our full country
significant foreign reserves it can draw on in the risk service, see http://www.risk-evaluator.com/.
event of tighter external funding. This should also Sovereign credit risk comes from our sovereign
help reduce the risk of large foreign outflows in risk tool and foreign exchange risk comes from
the event of a sharp rise in risk aversion. In the our FX tool. Find out more.
medium to long term, we expect the baht to rise
as the current account reverts to a solid surplus. Risk warnings
Chart 8: Higher inflation and slower-than-
Sovereign credit: 4.7/10
expected tourism recovery are downside risks
The sovereign credit risk score of 4.7 is below the Risk warnings
EM average of 5 and that of ASEAN peers (except GDP growth Growth will pick up next year
Singapore). thanks to tourism recovery
CPI inflation Inflation to come back down to
2% target by H2 2023
Thailand’s score reflects its relatively low public External balance to improve on
Current account balance
debt and limited foreign debt, helping to cushion lower oil prices and tourists
global shocks. Favourable funding conditions – as Government balance Fiscal consolidation efforts
could be derailed by subsidies
shown by the government's low debt servicing
Government debt Government debt-to-GDP will
costs and limited refinancing risks – demonstrate ease from its peak in 2022
the credible management of government debt External debt External debt levels low by

and monetary policy. A wide investor base, a international standards

well-capitalised banking sector, and strong Source: Oxford Economics

policymaking institutions provide additional
layers of protection. But the score is facing
upward pressure due to pandemic costs and a
widening budget deficit related to public
investment spending in the Eastern Economic
Corridor project.
Trade credit: 5/10
Trade credit risk – a measure of private sector
repayment risk – of 5 is below the EM average of
7.1. But it could come under pressure if more
prolonged supply chain disruptions and a sharp
global recession hit global trade.
What to watch out for
Political uncertainty. Political tensions may
escalate again. The persistence of anti-
government protests, despite movement and
gathering restrictions, underlines widespread
discontent with the government. We think the
effect on activity will remain minimal. However,
with consumer costs rising, there is a greater risk
that protests become more disruptive, thereby
souring the upturn in sentiment and damaging
the economic recovery.

Page 5 Sung Eun Jung - sjung@oxfordeconomics.com

EMISPDF Honeywell_HGR from 155.190.3.5 on 2022-12-13 08:48:28 GMT. DownloadPDF.
Downloaded by Honeywell_HGR from 155.190.3.5 at 2022-12-13 08:48:28 GMT. EMIS. Unauthorized Distribution Prohibited.
Growth pickup in 2023 hinges on external constraints

Household debt is very high. Thailand has one
of the highest levels of household debt in the
region, with the household loan-to-GDP ratio at
around 85% at year-end 2021, significantly higher
than 70% in 2011 (Chart 9). The prolonged
period of accommodative monetary policy may
have encouraged firms and households to
become even more indebted, and this could
result in greater financial stress when interest
rates revert to neutral rates.
with marked and persistent increases in market
interest rates and declines in equity markets. As
sentiment deteriorates, a broad-based US dollar
appreciation ensues. The global economy slows,
reflecting in part a persistent squeeze on
households' real disposable income. We forecast
world GDP growth will be significantly weaker in
the medium term. Thailand's GDP growth would
be 0.7ppts a year below our baseline over the
next three years.

Chart 9: High household debt could result in Chart 10: Housing market crash is the most
greater financial stress as rates rise damaging downside risk scenario
Thailand: Household loans Impact of scenarios on GDP growth
% of GDP Average annual impact over the next 3 years (% points)
120

100 0.4 End of supply-chain crisis

80
-0.1 Gas rationing
60

40 -0.7 High inflation regime

20

-0.8 Housing market crash

0
2009 2011 2013 2015 2017 2019 2021

Source: Oxford Economics/Haver Analytics Source: Oxford Economics

China slowdown. The Chinese economy’s

underlying growth structure is changing from
being mainly export and investment oriented to Chart 11: Risks are skewed to the downside
more domestic consumption. This is concerning Impact of scenarios on GDP growth
% year
for countries that depend on exports. In normal 6.0

times, China accounts for 12% of Thailand’s total 4.0

exports and around 20% of its tourists. 2.0

Exposure to key global risks 0.0

-2.0 Housing market crash

Housing market crash. In this scenario, rising High inflation regime
-4.0
interest rates and unemployment lead to sharp Gas rationing

falls in house prices, tighter credit conditions, and -6.0 Baseline

declines in consumer spending and investment. -8.0

2017 2019 2021 2023 2025 2027
We expect the growth recovery will be more
drawn out as the global economy enters a more Source: Oxford Economics
severe recession. After barely expanding in 2023,
we anticipate only a sluggish recovery in the
global economy in 2024. Thailand's GDP growth
would be 0.8ppts a year below our baseline over
the next three years.

High inflation regime. In this scenario, inflation

expectations become de-anchored from central
bank targets and remain elevated for a
prolonged period. Financial markets are rocked,

Page 6 Sung Eun Jung - sjung@oxfordeconomics.com

EMISPDF Honeywell_HGR from 155.190.3.5 on 2022-12-13 08:48:28 GMT. DownloadPDF.
Downloaded by Honeywell_HGR from 155.190.3.5 at 2022-12-13 08:48:28 GMT. EMIS. Unauthorized Distribution Prohibited.
Growth pickup in 2023 hinges on external constraints

Long-term prospects next decade, although we believe this will also

require some upskilling of the labour force.
We forecast the Thai economy will grow by 2.6%
a year between 2021-2030, slower than in the 10 In the long term, we also factor in the economic
years leading up to the pandemic. effects of climate change on Thailand’s potential
output. We expect higher global temperatures
Thailand's demographics are set to become more will harm productivity growth and capital stock,
challenging. The working-age population has both through lower investment and a higher
already started to decline. In the absence of depreciation rate.
raising the retirement age from 60 or boosting
labour-force participation, Thailand's shrinking Chart 12: It will take time to close the output
labour supply will increasingly become a drag on gap
both the labour market and potential growth. Thailand: Actual & potential output
Baht billion, 2002 prices
14000
Forecast
The coronavirus pandemic led to some 13000
destruction of capital, with investment more than
12000
3% below pre-pandemic levels as of Q4 2021. But Potential output
11000
after delays, a large pipeline of public-private
10000
megaprojects should boost infrastructure over
9000
the coming years. Under the government's
8000
Eastern Economic Corridor initiative, measures Actual GDP

such as tax exemptions, looser work visa 7000

requirements, and measures aimed at improving 6000

2005 2008 2011 2014 2017 2020 2023
the ease of doing business should support
domestic investment and FDI. We see investment Source: Oxford Economics
having a positive impact on productivity over the

Table 3: Potential GDP and its components

Average Percentage Growth
2011-2020 2021-2030
Potential GDP* 2.8 2.6
Employment at NAIRU 0.0 0.0
Capital Stock 3.3 2.9
Total Factor Productivity 1.7 1.6

*ln(Potential GDP)=0.65*ln(Employment at NAIRU) +0.35*ln(Capital Stock)+ln(Total Factor Productivity)

Source: Oxford Economics

Page 7 Sung Eun Jung - sjung@oxfordeconomics.com

EMISPDF Honeywell_HGR from 155.190.3.5 on 2022-12-13 08:48:28 GMT. DownloadPDF.
Downloaded by Honeywell_HGR from 155.190.3.5 at 2022-12-13 08:48:28 GMT. EMIS. Unauthorized Distribution Prohibited.
Growth pickup in 2023 hinges on external constraints

Table 4: Long-term forecasts for Thailand

(Average annual percentage change unless otherwise stated)
2011-2015 2016-2020 2021-2025 2026-2030
GDP 3.0 1.5 3.4 3.2
Consumption 2.6 2.7 3.6 3.1
Investment 3.2 1.1 3.6 3.7
Government consumption 3.5 1.6 1.6 2.6
Exports of goods and services 3.4 -2.7 8.4 4.5
Imports of goods and services 2.7 -1.5 7.8 4.6
Unemployment (%) 0.8 1.2 1.3 1.1

Consumer prices, average 2.0 0.4 2.3 1.6

Current a/c balance (% of GDP) 1.8 7.4 -0.4 2.9
Exchange Rate (per US$), average 31.8 32.8 33.5 30.2
Government balance (% of GDP) -2.7 -3.6 -3.1 -2.7
Short-term Interest Rates (%) 2.6 1.5 1.4 2.9
Long-term Interest Rates (%) 3.4 2.1 2.5 3.2

Working population 0.5 -0.1 -0.5 -0.7

Labour supply 0.0 0.0 0.4 -0.5
Participation ratio 78.0 76.2 79.8 81.4
Labour productivity 3.0 1.7 2.8 3.7
Source: Oxford Economic

Page 8 Sung Eun Jung - sjung@oxfordeconomics.com

EMISPDF Honeywell_HGR from 155.190.3.5 on 2022-12-13 08:48:28 GMT. DownloadPDF.
Downloaded by Honeywell_HGR from 155.190.3.5 at 2022-12-13 08:48:28 GMT. EMIS. Unauthorized Distribution Prohibited.
Growth pickup in 2023 hinges on external constraints

Background
Economic development
Thailand grew by an average of 9.4% annually from 1985 to 1996. According to the IMF’s purchasing power
parity (PPP) data, per capita income relative to that of the US almost doubled from 13% in 1980 to 24% in
1996. However, a sudden loss of investor confidence in 1997 led to the Asian crisis, and in 1998 the
economy contracted by 7.6%. It started to recover in 1999, expanding by 4.6% that year and by 4.5% in
2000, thanks largely to strong exports. Growth was dampened by the softening of the global economy in
2001, but it picked up in the subsequent years owing to strong growth in Asia, a relatively weak baht
encouraging exports, and increased domestic spending due to Prime Minister Thaksin Shinawatra’s
emphasis on building domestic demand following his election in 2001. Thaksin was ousted in a military
coup in 2006, and since then political uncertainty has inhibited GDP growth. On top of this, Thailand
suffered a recession in 2009 due to the global financial crisis. In late 2011, activity was severely curtailed by
floods, which affected some of Thailand’s key industrial areas. After doubling in the 20 years to 1996, GDP
per capita in PPP terms relative to the US rose from 24% in 1996 to 29% in 2015. The climate of political
uncertainty persists, and we expect Thai growth will continue to underperform the rest of the region.

Structure of the economy

In 2019, the services sector accounted for nearly 59% of GDP, the manufacturing sector 27%, and
agriculture and fishing 8%. The three other main sectors – construction, utilities, and mining and quarrying
– each accounted for 2% to 3% of GDP. While these shares were similar in 1995, suggesting the economy’s
basic structure hasn’t changed much over the past 20 years, that’s no longer the case. The biggest
difference has been the growth of tourism, which accounted for 5% of GDP in 2005. By 2019, tourism’s
share was more than 12%, and Thailand was the top destination in Southeast Asia. Almost 40 million people
visited Thailand in 2019, compared with 26 million who went to Malaysia, close to 18 million to Vietnam,
and 16 million to Indonesia. The other key trend is strong growth of the electronics and automobile sectors.
Each contributed around 10% to manufacturing output in 1995, but by 2019 electronics contributed around
24% and automobile almost 30%. Sectors such as textiles, food and beverages, and rubber and plastics
have declined.

Balance of payments and structure of trade

In line with the industrial transformation, Thailand’s goods export mix has also changed. Automobiles and
parts accounted for 15% of Thailand’s US$ exports in 2019, up from less than 2% in 1995. Machinery and
equipment now account for close to 10% of exports, a share that has more than doubled since 1995.
Electronics account for 20% of exports, agro-manufactured products 12%, and agriculture, forestry, and
fishing 8%, down from 16% in 1995. Japan has been the biggest foreign investor in Thailand, supporting the
growth of the electronics and automobile sectors. Foreign direct investment accounted for around 1.8% of
GDP on average in 2018-2019, down from more than 3% before the 2014 military coup as a high level of
political risk has weighed on investor confidence. Oil prices fell sharply in H2 2014, and this helped take
Thailand’s current account surplus to nearly 10% of GDP in 2015 because fuels and minerals accounted for
more than 20% of the country’s goods imports in 2011-2014. Tourism is the other key factor behind the
current account surplus in recent years.

Policy
The baht was effectively pegged to the US$ prior to July 1997, but this system had to be abandoned due to
a dramatic loss of investor confidence in Thailand, and the economy suffered a deep recession in 1998.
Thailand received IMF support and adopted a monetary targeting regime from July 1997 to May 2000.
Since then, the BoT has targeted price stability. The Monetary Policy Council, which comprises three internal
and four external members, is responsible for setting monetary policy with the aim of ensuring low and

Page 9 Sung Eun Jung - sjung@oxfordeconomics.com

EMISPDF Honeywell_HGR from 155.190.3.5 on 2022-12-13 08:48:28 GMT. DownloadPDF.
Downloaded by Honeywell_HGR from 155.190.3.5 at 2022-12-13 08:48:28 GMT. EMIS. Unauthorized Distribution Prohibited.
Growth pickup in 2023 hinges on external constraints

stable inflation. The target for headline inflation is 2.5%. Since July 1997, Thailand has adopted a managed-
float exchange rate regime, consistent with its inflation-targeting regime. The central bank can intervene if
there is excess volatility, particularly instability resulting from speculative capital flow.

Politics
Thailand is a kingdom. The king is officially titled Head of State, the Head of the Armed Forces, Upholder of
the Buddhist religion, and the Defender of all Faiths. King Bhumibol Adulyadej reigned from 1946 until his
death in October 2016, making him the longest-ruling monarch in Thai history. Thailand had an absolute
monarchy until 1932, and the 1997 constitution was the first to be drafted by a popularly elected
Constitutional Drafting Assembly. The constitution created a bicameral legislature consisting of a 500-seat
House of Representatives and a 200-seat Senate. For the first time in Thai history, both houses were directly
elected. The January 2001 general election, the first under the 1997 constitution, was won by Thaksin
Shinawatra, and the subsequent government was the first to complete a four-year term. At the 2005
election, which had the highest voter turnout in history, Thaksin won a second term.

After intensifying levels of political conflict surrounding a highly controversial business deal, Thaksin was
accused of corruption and abuse of power, and was subsequently ousted in a military coup in September
2006. He has since been in self-imposed exile, facing a two-year jail sentence if he returns to Thailand after
being convicted in absentia on a conflict-of-interest charge.

When elections were held 18 months after the coup, Thaksin's supporters returned his allies to power.
However, in November 2008, the Peoples' Alliance for Democracy (PAD) group, which wears yellow shirts
and opposes Thaksin, staged a weeklong sit-in at Bangkok's two airports, shutting down air traffic and
crippling the tourism industry. These protests, combined with a court decision to ban the ruling party, left
the Democrats in a position to form a coalition government.

In March and April 2009, supporters of Thaksin, who wear red shirts and whose formal name is the United
Front for Democracy (UDD), called for fresh protests in Bangkok in an attempt to overthrow the
government. As the army gathered, the Red Shirts called off their protest because they feared greater loss
of life. But the anger didn’t go away, and in March 2010 they called for renewed protests in Bangkok aimed
at toppling the government. The protests ended in May with a military crackdown, which left at least 88
people dead.

The Puea Thai party supporting the Thaksin cause won the general election in July 2011. The elections were
peaceful, and the military accepted the victory, allowing Yingluck Shinawatra (Thaksin’s sister) to form a
government and begin a four-year term as the prime minister. However, in November 2013 the
government tried to pass an amnesty bill that would have allowed self-exiled Thaksin to return to Thailand.
The bill was rejected, but it sparked mass protests. The prime minister called an election in February 2014,
18 months ahead of schedule. The election took place but was then declared invalid.

The army seized control again in May 2014, with this coup subsequently gaining the king’s support. In
August 2016, a referendum on a new constitution was passed. This tilted the balance of power towards the
pro-military (junta) party because 250 seats in the Senate are appointed from the Royal Thai Military. In
March 2019, after several delays, Thailand held its first general election since the military coup. The pro-
military Palang Pracharath Party (PPRP), led by incumbent Prime Minister Prayut Chan-o-cha, won the
election with a slim majority in the lower house.

Page 10 Sung Eun Jung - sjung@oxfordeconomics.com

EMISPDF Honeywell_HGR from 155.190.3.5 on 2022-12-13 08:48:28 GMT. DownloadPDF.
Downloaded by Honeywell_HGR from 155.190.3.5 at 2022-12-13 08:48:28 GMT. EMIS. Unauthorized Distribution Prohibited.