What is behind Thailand’s strong first quarter economic growth

Photo: Prayut Chan-ocha/Wikimedia Commons

The Thai economy has reached five-year highs. However, the government has not yet laid the foundations to take it even higher.

Editorial

Thailand’s gross domestic product (GDP) growth soared to five-year highs in Q1 of 2018. The Thai economy grew by 4.8% last quarter, surpassing predictions. The surge has led the statistics agency to reassess its growth predictions for the year. It now estimates 2018 growth of 4.2- 4.7%, up from 3.6-4.6%.

Sources: World Bank, Asian Development Bank

The government has several factors to thank for its economic uptick. The resurgence of Thai exports is largely responsible. However, rebounding farm output and a boost in tourist spending have also contributed.

Thai exports are at the highest level for seven years

Thai 2018 first quarter shipments rose by 11.3%, to their highest level in seven years. Although, exports to China were down from last year’s levels. Chinese exports contracted by 8.7% between 2017 and 2018. But Thailand made significant growth in other markets. Thai exports to India recorded 21.7% growth on last year’s levels, the most out of any export destination.

Source: Bangkok Post

This growth comes from strong performances in key Thai industries. Industrial shipments have grown month-on-month for the last 13 months. Industrial shipments now stand at US$18 billion.

Tourist numbers are up, and Thailand is targeting the higher-end market

In 2017 35 million tourists visited Thailand’s shores, up 9% on 2016 levels. Making up around 12% of the Thai economy, increasing tourist numbers is a catalyst for growth.

Unlike in the export market, Chinese tourism to Thailand grew between 2016 and 2017. The number of Chinese tourists were up 12% on 2016 levels.

Can Thailand sustain its growth?

The strengthening baht poses a threat to GDP growth in Q2 and Q3. However, the Thai economy is resilient enough to continue to present growth.

The baht has increased in value against the dollar by 3.9% in 2018, putting it at a four-year high. A stronger currency usually means a decrease in tourism and export revenues. It makes it more expensive for foreign nations to purchase Thai products. It also makes it more expensive for foreign tourists to visit the country.

A stronger baht could result in a slight decrease in tourist numbers. However, this is something the Thai government is prepared for. It has a plan to mitigate its losses. The objective is to appeal to more high-end European and Chinese tourists. In 2017, tourists brought in 1.8 trillion baht (US$56 billion) in revenue. For 2018, the government is hoping for revenues of 2.1 trillion (US$65 billion).

Thailand’s export industries should also maintain their strength. Its leading export destinations are maintaining healthy economies. As digital penetration increases across ASEAN, there are ample opportunities for Thai exports. Computers, integrated circuits, telephones and air conditioning units account for a combined value of 16.8% of Thai exports. As the ASEAN market for electronics expands, Thailand’s exports will soar.

The economy is also in a strong position to avoid any volatility incurred from a US rates rise. Thailand currently enjoys a current account surplus. It has also increased foreign reserve levels in the first months of 2018.

But 5% GDP growth is still a long way off

The Thai government has built a robust economy. It is likely to maintain its strong growth figures. But it is unlikely to breach the ceiling of 5% GDP growth soon.

To achieve higher growth levels, Thailand must foster an environment for innovation. The government would need to introduce innovation-friendly policies. This would mean investing in education, carrying out structural reforms, and promoting competition. It would also require tighter intellectual property legislation and liberalizing the national services.

The greatest challenge for the Thai economy is generating long-term higher growth. The difference between developing economies and established, high-growth economies is innovation. A thriving tourism sector and healthy export revenues provide good growth figures. But they are not enough to catapult Thailand among the advanced economies of the world.