On Friday, Thailand’s central bank slashed its growth forecast for the Thai economy for 2015, to 2.7 percent. As noted in a summary of the bank’s report in The Diplomat, this was the third time this year that the Bank of Thailand (BoT) has cut its growth forecast, and the BoT’s projected growth for 2015 is about half what it had expected for the Thai economy before the year started. A growth rate of 2.7 percent for the year would almost surely make Thailand the worst performing economy for 2015 in Southeast Asia. Even neighboring Malaysia, buffeted by swirling investigations into the 1MDB state fund, rising political uncertainty, and capital flight, will almost surely grow faster than Thailand.
More worrying than even the overall growth figure, Thailand’s export growth has dropped month after month, and the country’s manufacturing index has continued to plummet as well. External factors play a role, as the BoT noted. With all emerging markets, including China, weakening, many of Thailand’s most important export markets are impacted; equity investors are fleeing emerging markets, which hurts Thailand’s stock exchange too. But though all countries dependent on exports are hurt, Thailand is hurting more than many others, as years of political turmoil, uncertainty about the coup government, and a lack of investment in education have finally begun to bite. The failure to upgrade Thai educational institutions to focus on higher-value skills and reduce rote learning was highlighted by the recent release of QS World University rankings, one of the most popular university assessment sites. The top five Thai universities all fell places from their 2014 rankings or stayed in the same place as they were in 2014, while competitors in Singapore leapt up the charts. Thai media reported the rankings drop, but the story of Thailand’s top universities reflects a broader education problem. Throughout primary, secondary, and tertiary institutions, Thai schools continue to fail to produce a workforce suited for an economy that can no longer rely on labor-intensive manufacturing when other countries in the region have cheaper workforces.
After more than a decade of political turmoil, Thailand’s big investors and everyday consumers also have become too scared to do much with their money. Consumer spending among lower-income Thais has stagnated, one reason why the government is aggressively pursuing economic stimulus, after previously halting government spending on agricultural subsidies and other projects that primarily help poorer Thais.
The lack of a clear roadmap toward the end of junta rule, and the uncertainty over royal succession, also is deterring investment in the kingdom. The deadline for a return to civilian rule remains murky, and Prime Minister Prayuth is now the longest-serving junta leader in Thailand in decades. When Samsung Electronics announced in May that it was closing television production facilities in the kingdom, moving them mostly to Vietnam, company officials did not openly cite political uncertainty as a reason for leaving. But the combination of lower labor costs and greater stability in Vietnam must have been attractive.
Prime Minister Prayuth surely recognizes that the Thai economy needs more reliable stewardship, with ministers trusted by domestic and foreign investors---he recently appointed a new economic team headed by Somkid Jatusripitak, a former Thaksin-era finance minister who has since broken with Thaksin and supported the junta. Somkid and the other new appointees have been moving quickly, meeting with major Thai and foreign investors and announcing a new $4 billion stimulus package. But without more clarity on Thailand’s political future, clarity that might unleash new investment in the kingdom, Somkid faces an enormous challenge in his new position.