Thailand’s growth began to slow in 2019, with growth falling to 2.5 percent due to external and domestic factors
- Global growth is projected to weaken to 2.4 percent in 2019 and to recover slightly to 2.5 percent in 2020, but risks are tilted to the downside on global growth, particularly for international trade (wbg.org/gep).
- Thailand’s economy is projected to pick up moderately to 2.7 percent in 2020, underpinned by an expected slight improvement in external demand and recovery in private consumption as well as a stronger focus on public investment implementation.
- Risks to Thailand’s economic outlook stem from both external and domestic sources. The external risks stem from a possible continuation of the US-China trade tension and a broadening of protectionist tendencies, and domestic short-term risks mainly on the cohesiveness of the coalition government, which could impact investor confidence. On the upside, Thailand’s exports could benefit if policy uncertainty related to trade tensions subside.
- Implementation of major public investments and public-private partnership projects could further support growth and investor sentiment in the short and medium-term especially if accompanied by greater efficiency in public investment management.
- As the government envisages further policy initiatives to protect vulnerable households, the introduction of better and more targeted social protection could be considered.
This edition of the Thailand Economic Monitor provides an in-depth analysis of recent developments in productivity growth and discusses policies to boost productivity in the manufacturing sector.
- Thailand’s economy-wide productivity gains from 1980-96 were driven mainly by structural transformation, with labor moving from low productivity agriculture to higher productivity manufacturing and services sectors.
- However, this process has stalled, with productivity growth since the Asian Financial Crisis driven more by gains within sectors than from the movement of labor between sectors.
- The analysis of drivers and constraints to productivity of manufacturing firms using firm-level data highlights some key empirical findings: (i) manufacturing firm productivity growth has been higher for industries that export more (ii) firms that receive foreign direct investments are more productive; (iii) there are a number of small, productive firms that are not growing in size suggesting constraints to firm growth; and, finally, (v) firms that use more skilled labor and invest in research and development are more productive and innovative.
- The results also highlight that productivity growth driven by exit of unproductive firms and entry of new, productive firms is low, particularly in Thailand’s domestically oriented industries, with legislation that discourages new firms, especially foreign firms, from entering the domestic market or markets with state enterprises, and weak enforcement of the competition law.
- Policy recommendations to boost productivity in Thailand could focus on: (i) increasing openness; (ii) enhancing competition in the domestic economy; and (iii) promoting a stronger eco-system for firm innovation.