The Thai Economy: The Current State and the Way Forward
Speech by Dr. Veerathai Santiprabhob
Governor of the Bank of Thailand
Japanese Chamber of Commerce (JCC) Thailand Dinner Talk
27 March 2019
JCC Board of Directors,
JCC members,
Distinguished guests,
Ladies and gentlemen,
Good evening to you all,
Thank you very much for inviting me once again to give a talk at
the Japanese Chamber of Commerce Thailand. This event is a great
opportunity for us all to exchange our views and ideas on the Thai
economy and its prospects as we move forward into the year 2019. Your
opinions and feedback are undoubtedly valuable to policymakers, like
myself, and I look forward to a very engaging session tonight.
Japan and Thailand have been in long-standing diplomatic
relations for more than 132 years-and even much longer from a trade
perspective, dating back to as early as 1600s. Time has shown that while
the Thai economy has encountered many challenging transitions,
business partnerships between Japan and Thailand have continued to
remain strong, fostering economic opportunities for both our nations
throughout the present day.
As you all know, this year is a very special one to all of the Thai
people as well as the Japanese people as both our countries will hold
national celebrations for our respective head of state in early May-to
celebrate and honor the coronation of His Majesty the King Maha
Vajiralongkorn and the ascension of Crown Prince Naruhito to the
Imperial throne.
This year also marks a significant transition for Thailand to return
to democracy as the general election was just held over the weekend.
Ladies and gentlemen,
Undoubtedly, one of the most pressing questions many audiences
here today are wondering will certainly be on the implications of the
outcome of the election and how that will impact the Thai economy.
Unfortunately, it is too early for us to make a call as we still await
ratification of the election result, formation of the new government,
appointments of key members of the cabinet, and announcement of the
economic policy. So instead, today I want to focus my talk on long-term
perspective of the Thai economy and highlight key qualities of our
economic resilience that have allowed the Thai economy to endure a
number of domestic and external shocks-many of which in the past, I
believe, were much more challenging compared to the impending
political change post-election.
But before speaking about long-term perspective, allow me to talk
briefly on our short-term outlook as our Monetary Policy Committee has
just recently revised our economic projections.
Looking back the past few years, the recovery of the Thai
economy had been largely driven by improvements on the external front
from the recovery of global demand. Growth drivers were unbalanced;
exports of goods and services acted as the main drivers of growth while
domestic sectors were well-below historical average. Last year marked a
turning point as growth became more balanced. Private consumption
strengthened, supported by improvements in employment in major
sectors as well as government measures to support low income groups,
such as the state welfare card project. In addition, private investment
expanded with increased investments in machinery and equipment
along with greater construction activities as the overall growth became
more broad-based. We have seen markedly increasing interest from
foreign investors, especially in the EEC area.
Consequently, in 2018 the Thai economy expanded on a solid
footing, with growth of 4.8 percent in the first half, before moderating in
the second half due to slowing global demand. This weaker global
demand was largely a result of slower economic growth in a number of
major trading partners; a number of country-specific transitory factors;
and uncertainties surrounding trade tensions between the US and China.
Nevertheless, thanks to more balanced growth engines, the Thai
economy grew 4.1 percent in 2018, an improvement from 4.0 percent
growth in 2017. It was also the first time in a decade that the Thai
economy registered consecutive annual growth of 4 percent.
Looking ahead, the Thai economy is projected to continue to
expand around its potential, with growth this year will slightly moderate
to 3.8 percent as slower growth of major trading partners weighs on the
export sector. Domestic demand would remain the key growth driver, as
private consumption continues to be supported by government welfare
measures and underpinning factors, such as employment and consumer
confidence, remain strong. Furthermore, private investment is expected
to continue to improve, aided by more investments in the EEC area,
further progress in the public-private partnership infrastructure projects,
and relocation of production bases to Thailand in industries such as
electronics, automotive parts, and rubber. Meanwhile, the tourism
sector is expected to continue to expand mainly due to improved
confidence and return of Chinese tourists. It is expected that the number
of foreign tourists will exceed 40 million this year.
Ladies and gentlemen,
Although our outlook indicates a sustained growth, a number of
risk factors remain. These include
(1) The potential impacts from US protectionist policies and trade
tensions with China, which so far have had mixed effects on the Thai
economy. The direct effect of US safeguard measures on certain
products led to slowdown in exports of solar cells and washing
machines, though they have had small impact on our overall exports 1.
Meanwhile, US trade measures against China could have indirect impact
on Thai exports as a number of Thai firms are part of Chinese production
and supply chain networks; potential reduction in Chinese exports has
reduced the demand for Thai supply. Furthermore, the measures can
lead to trade diversion, the consequence of which remains to be
determined. On one hand, the Thai economy may benefit from new
investments from relocation of Chinese factories. Thai firms may be able
to supplant Chinese competitors in exporting to the US. On the other
hand, trade diversion can lead to increased competition within Thailand
as excess supplies of goods from China are diverted to the Thai market
and priced at discount to compete with local products.
Besides, prolonged uncertainties surrounding trade measures had
led to unusual front-loading of exports in 2018 and will weigh on export
growth in 2019-just when the global demand has begun to moderate.
It can also impair business sentiments, preventing firms from taking on
new investment projects. Ultimately, as the US-China trade disputes
remain unresolved and the US's inclination for further trade
1
Both products make up less than 1 percent of Thailand's total exports
protectionism remains, such as potential US auto tariff measure, trade
disputes will certainly be the key concern for all authorities.
(2) Slowdown in the Chinese economy is another concern. While
the slowdown may be in line with the Chinese authorities' goal of
restructuring the economy towards a long-run sustained growth model,
in the short-term it can have significant impact on the Thai economy.
This is because of high degree of linkages in terms of supply chain and
production networks, tourism, and property investment. For instance,
China is Thailand's second largest export partner following the ASEAN
region, making up about 12 percent of our exports in term of value while
the Chinese tourists represent nearly 30 percent of total foreign tourists.
Besides, slowdown in the Chinese economy may contribute to higher
volatility of the Chinese Yuan; the movements of which can influence
movements of the Baht and other currencies in the region. Against this
backdrop, short-term slowdown in the Chinese economy needs to be
closely monitored.
(3) Geopolitical risks in many parts of the world remain elevated.
These include long-standing issues such as the US-North Korea relations,
Middle East conflicts, and development on Brexit. In addition, new
sources of fragilities continue to emerge, such as the recent disputes
between India and Pakistan and Venezuelan political tensions. While
some of these conflicts may not be directly related to the Thai economy,
the presence of geopolitical risks could introduce bouts of uncertainties
and impair sentiments, leading to capital flow volatility in Thailand and
other emerging market economies.
(4) Lastly, on the domestic political front, given the unofficial
result of our general election over the weekend, uncertainties remain on
how a new coalition government is to be formed. The result of which will
play a big part in determining major government policies going forward.
Ladies and gentlemen,
Talking only about short-term risk factors may curb the appetite of
many in audience tonight. So, let me now turn to the long-term
perspective on the Thai economy.
Despite the risk issues highlighted, I am confident that the Thai
economy possesses the resilience to support long-term growth and
cushion against these risk factors. Recent history has shown that the
Thai economy has the resilience to withstand adverse events and has
been quick to recover. Over the past ten years the economy has had to
endure a number of shocks-externally, from the global financial crisis
of 2009 to the beginning of quantitative tightening; and internally, from
the domestic political turmoil throughout the decade, big flood of 2011,
to the passing of His late Majesty King Bhumibol Adulyadej in 2016. And
yet, over the past decade the Thai economy grew on annual average of
3.3 percent; it registered positive current account surplus in eight of the
last ten years; and the Thai Baht has been one of the most stable
currencies in the region.
The economy has been able to overcome these challenges,
because it possesses a unique set of qualities, qualities that contribute
to our resilience. These key qualities are macroeconomic stability,
diversified growth engines, and ability to adapt to new challenges.
Ladies and gentlemen,
Having sound macroeconomic stability is important for an
economy to ensure confidence and provide environment conducive to
growth. It also acts as a critical buffer, especially for small open
economy, against episodes of external shocks and capital flow volatility.
The Thai economy possesses macroeconomic stability in at least four key
areas:
(1) Our external stability remains strong, with ample foreign
reserves, covering 3.4 times short-term external debt. Our current
account surplus has been in the positive for five consecutive years and is
projected to be around at 34.5 billion USD this year, or around 6.4
percent of GDP. In addition, the economy has low dependency on
external financing, with external debt to GDP ratio below the median
level of emerging market economies2.
(2) The banking sector is robust, with high capital adequacy ratio
and stable domestic funding. At the end of 2018, the capital adequacy
ratio of the banking system stood at 18.3 percent, a level well above
minimum international requirement and among the highest in the
region. Meanwhile, loan growth has picked up in line with our economic
expansion while level of non-performing loans has stabilized.
(3) The fiscal position remains strong and has sufficient space to
support the economy in case of downturn. Public debt to GDP is around
2
Thailand's external debt to GDP is 35.3 percent as of 2018 vs the median of 37.8 percent for EM economies. IMF data calculated by BOT
42 percent, a level below the commonly accepted threshold of 60
percent. Meanwhile, the enactment of Fiscal Responsibility Act would
ensure fiscal discipline through improvement in spending transparency
and limit conduct of open-ended populist policies.
(4) Domestic price pressure remains moderated and stable, largely
as a result of slow recovery in the global oil price and positive structural
factors, such as globalization and technological advancement. Low and
stable domestic price pressure will continue to provide favorable
environment conducive for economic activity.
While the overall macroeconomic stability is sound, pockets of risk
remain. In response, the Bank of Thailand took on a number of actions
including implementation of new limits on credit card and personal loans
to address problem of household debt; establishment of debt clinic to
help restructure debt for individuals with multiple creditors; and
tightening up of mortgage loan underwriting standards to curb
speculation in the housing market. Along the same line, on the back of
strong economic performance and ample liquidity, the Monetary Policy
Committee raised the policy rate in December of last year largely to
preempt potential build-up of financial vulnerabilities from investor's
"search-for-yield" behavior and underpricing of risk during prolonged
period of ultra-low interest rate.
Ladies and gentlemen,
Let me now turn to the resilience supported by having diversified
growth engines, which in turn enable the Thai economy and its agents to
mitigate adverse events.
While I previously stated at the beginning of my talk that drivers
of growth have become more balanced, structurally-being a small open
economy-export performance still plays an important role as the main
growth driver. But, looking closely at our export portfolio, you would
find that it is well-diversified and can provide cushion against
marketspecific or product-specific risks. This is because Thailand has established
export ties with over 80 countries; and exporters have become less
reliance on major economies. Just over ten years ago, exports to G3
economies made up around 40 percent of total export value while those
to ASEAN economies stood at 21 percent. In contrast, the ratios today
stand at 31 percent and 27 percent, respectively. In terms of product
mix, the economy neither depends on a specific commodity nor on a
particular manufacturing sector. This has allowed for growth and
development of new industries to serve both domestic and external
demands. Certainly, efforts to attract new investments in the EEC area
will further enhance our ability to diversify, with establishment of
industries of the future.
The tourism industry is another well-diversified sector. With many
unique destinations and attractions, the tourism industry is able to cater
to wide range of customers in term of pricing and activities-from
luxurious wellness centers for medical tourists to affordable
accommodations for first-time foreign travelers. In fact, recent tourist
patterns may have indicated that there is no longer low season in
Thailand. The number of incoming foreign tourists has become relatively
stable throughout the year with different mixes across different seasons.
More importantly, given the choice of attraction and selection of price
range, Thailand is in a unique position to attract many first-time foreign
tourists, especially those rising middle class from China, India, Indonesia,
and Vietnam.
Last but not least is the ability for the economy and Thai people to
adapt to change. The notion of adaptability is important for economic
resilience not just to respond to adverse events and uncertainties but
also to cope with disruptive changes, especially against the backdrop of
changing landscape brought about by technological advancement.
Speaking on behalf of the Thai people, I believe our history has
played a big part in influencing our actions and our mindsets, allowing us
to cope with new challenges. Specifically, Thailand's long history as an
open trading nation-having limited resources and military strength, and
operating under the landscape of continued foreign threats-has
implanted the mindsets of the Thai to be open-minded and receptive to
new opportunities while flexible in our approach to adversities. It is with
this mindset that has allowed our nation to adapt to changing
environment and withstood various threats.
Looking ahead, our resilience will certainly be tested by disruptive
changes brought about by technological advancement. Thus far, the Thai
people have shown that they are able to adapt and be receptive of new
opportunities that have come with new technologies. This can be seen in
the remarkable rate of adoption of the PromptPay faster-pay service
since its launch just over two years ago, with now over 47 million
subscribed accounts, a large number considering the total population of
Thailand is just over 66 million. During that same period, usage of digital
payment almost doubled, reaffirming receptiveness of the Thai people
to new payment channel. Moreover, the Thai population is digitally
engaged, ranking among top countries with the highest number of social
media users3. This has created opportunities for new platforms to
emerge and innovations to prosper.
Besides the people, increasing number of Thai businesses have
incorporated new technologies into their work processes. Over the past
few years, manufacturers have invested heavily in machineries and
systems to increase utilization of automation as evidenced by increasing
robot installations in Thai factories4. Firms in non-manufacturing sector
are also moving fast in adopting new technologies-from banks and
telcos offering more efficient digital financial services; shops abandoning
physical storefront and employing e-commerce and social-commerce
platforms; and to firms advertising through social media platforms.
To encourage further technological adoption and improve
adaptive capabilities, to ultimately build resilience, it is also important
that regulatory environment is conducive to fostering innovations. And it
is with this goal of facilitating innovative environment that the Bank of
Thailand took on a number of initiatives in recent years. These include
 Continuing regulatory reform on foreign exchange regulations
to remove outdated requirements, allow for greater flexibility
in foreign exchange management, and improve ease of doing
business;
 Relaxing money transfer business ownership requirements to
allow for greater competition and reduce cost of cross-border
money transfer;
 Streamlining our regulatory sandbox scheme to allow new fin-
tech products to reach market faster;
 Collaborating with the banking industry to explore use of
central bank digital currency for domestic wholesale banking
settlement operations; and
3
For instance, Thailand is ranked top ten in number of Facebook users according to Statista (2019).
https://www.statista.com/statistics/268136/top-15-countries-based-on-number-of-facebook-users/
4
According to International Federation of Robotics, Thailand's robot sales increased by over 30 percent between 2015 and 2017 and are
expected to grow at an annual average of more than 20 percent over the next three years. International Federation of Robotics. World
Robotics 2018.

Promoting adoption of interoperable e-payment
infrastructures within Thailand as well as among regional
partners
In summary, the ability to adapt to new environment along with
having macroeconomic stability and diversified growth engines have
enabled the Thai economy to have the resilience to endure adverse
incidents and will safeguard us from impacts from future uncertainties
and disruptions.
Ladies and gentlemen,
I have now come to the end of my talk. Let me give you a brief
summary of what I have said today. The Thai economy is expected to
continue to expand, though at a slightly slower pace, with domestic
demand being the main drivers of growth. The risks and concerns going
forward include prolonged trade disputes, slowdown of the Chinese
economy, geopolitical risks, and transition of the Thai political
landscape. Nevertheless, with the economy possessing three important
qualities of resilience, namely macroeconomic stability, diversified
growth engines, and ability to adapt, I am confident that the Thai
economy can withstand various challenges in the years to come.
Again, it is my great honor to be here this evening with our long-
time friends who have supported Thailand's economic and financial
development. Let me assure you that the Bank of Thailand will continue
to strengthen our economic resilience and stay firmly committed to our
principal mandate to support sustainable economic growth while
maintaining price and financial stability.
Thank you.