A recent S&P Global discussion examined the challenges and opportunities shaping Thailand’s economy, spanning demographics, trade barriers, household debt, and banking strategies. Experts highlighted both the structural constraints and the policy shifts needed to unlock future growth.
Deep-Seated Structural Challenges
Thailand faces two key hurdles: a shrinking workforce and slow industrial upgrading.
The working-age population, which grew 0.5% annually over the past decade, is expected to contract by 0.4% over the next ten years—starkly different from the 3.9% projected growth for Southeast Asia overall. This demographic drag alone could lower GDP growth.
Meanwhile, despite having a diversified manufacturing base, Thailand has struggled to climb the value chain. Productivity growth has lagged regional peers like Malaysia and Vietnam, making it harder to attract next-generation investment. Reversing these trends will be challenging, though Thailand’s past success in building a strong industrial base shows it can adapt with the right strategy.
Adapting to Global Trade Dynamics
Exports account for nearly 60% of Thailand’s GDP, leaving corporates exposed to shifting global trade policies, particularly from the U.S. Thailand now faces 19% tariffs on U.S. exports, on par with regional peers.
Early signs suggest certain industries and FDI inflows could gain:
- Winners: Rubber products, which are exempt from U.S. tariffs, remain unaffected. Processed food exports (tuna, pet food) and rubber crafts see improved competitiveness. Industrial estate developers report rising land purchases by foreign investors.
- Adaptation: Auto part makers are reducing reliance on China while also supplying components to Chinese EV manufacturers operating in Thailand.
The Persistent Challenge of Household Debt
Household debt, close to 90% of GDP, is Thailand’s most pressing domestic risk—far above the regional average of 30–40%. Three factors intensify the problem:
- Scale: At 88% of GDP, debt levels are exceptionally high.
- Income: With GDP per capita at just US$7,500, repayment capacity is limited.
- Debt Structure: Unlike most Asia-Pacific economies where mortgages dominate, Thai household debt is mostly consumption-based (personal loans, credit cards), which carry high interest.
This structure fosters “persistent debt,” where payments mainly cover interest, perpetuating rollovers. Household lending has already contracted 2% year-on-year. Regulators are enforcing stricter lending rules to bring debt down to 80% of GDP within five years—a painful adjustment in the short term but healthier for long-term stability.
Boosting Tourism: Moving Up the Value Chain
Tourism, contributing 12–20% of GDP, has yet to fully recover, particularly in attracting high-spending visitors. Current offerings remain concentrated in mid-scale, beach-focused holidays. Diversification toward premium tourism—semi-private beach resorts, luxury experiences, and targeted FDI—could raise value per tourist.
Infrastructure constraints, such as airports in Bangkok operating near capacity, must also be addressed to accommodate future growth.
SMEs and Competitiveness in a Globalized Market
Thai SMEs face mounting competition from low-cost Chinese imports in electronics, machinery, and textiles. Traditional price-based business models are losing ground, but niches remain:
- Struggling SMEs: Those competing on price against Chinese firms.
- Thriving SMEs: Those in tourism or supplying higher-value exports, such as premium food products and specialized machinery.
Policy support, including soft loans and credit guarantees, is critical to helping SMEs integrate into global supply chains.
Viable Engines for Future Growth
Despite the challenges, Thailand has several promising growth avenues:
- Special Economic Zones & Infrastructure: Upgrading SEZs, rail, and airports to attract investors.
- Policy Continuity: Building on Thailand’s reputation as a reliable manufacturing hub to capture global supply chain diversification.
- Digital Infrastructure: Strong FDI interest in data centers, with players like Amazon investing.
- EV & Battery Localization: Expansion in EV and battery production.
- High-Tech Manufacturing: Growth in PCBs and auto manufacturing, signaling positive FDI momentum.
Though net FDI remains modest compared to peers, gross inflows have risen steadily over the past three years. Infrastructure development, particularly in the Eastern Economic Corridor, remains key to sustaining momentum.
Banking Sector Adaptations
The banking sector faces elevated risks: NPLs stand at 3%, while “weak loans” total around 10%—roughly double the regional average, driven by household debt and SME vulnerabilities. Loan growth is flat at about 0–2%.
Still, Thai banks remain well-capitalized, with capital adequacy ratios near 20% and liquidity coverage ratios at 200%—double the minimum requirement. With limited domestic growth opportunities, banks are pursuing two strategies:
- Capital Returns: Increasing dividends and share buybacks (e.g., TMBThanachart).
- Overseas Expansion: Seeking growth in high-potential markets like Indonesia (e.g., Bangkok Bank’s acquisition of an Indonesian bank), though foreign entry barriers remain high across Southeast Asia.
