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Thailand 2017 | ECONOMY | REVIEW: ECONOMY

Thailand has produced strong economic figures over the past year, and the government is hoping to carry that momentum into 2017.

Behind Indonesia, Thailand has the second-largest economy in the Southeast Asian region, reaching a total GDP in 2015 of approximately USD395.282 billion. The country's general trajectory of economic and social development has long been closely linked to the performance of its industrial and agricultural sectors, which represent an influential share of the exports on which the Thai economy is so dependent. According to the World Economic Forum's 2015-2016 Global Competitiveness Report, the 75.6% share of its GDP accounted for by exports put Thailand at 18th place in the world by that measure. The Thai economic profile can be trustily contrasted from regional competitors—including GDP-leading Indonesia—by the efficient use of talent in the labor market, as despite Thailand recording slightly less than half the GDP of Thailand in 2015, the population of Indonesia is only slightly more than 25% of Indonesia's. Echoing this accumulated reputation for efficient economic output, the Global Competitiveness Report ranked Thailand 43rd in the world in terms of the efficiency of its talent utilization, but after recording a 2.8% GDP growth in 2015, initial projections for Thailand's economy in 2016 were set at a slightly lower level of growth near 2.5%.

In 2014, manufacturing, wholesale, and retail trade, together with the agricultural sector, accounted for roughly 52% of the country's nominal GDP, while representing around 66% of employment. The single largest source of marginal gains in terms of contributions to GDP in 2014 was the services sector, while agricultural value generation remained relatively static. These figures highlight the ways in which Thailand fits the mold of its economic peers in the country's new era of its own economic progression, as value generation increasingly moves away from its traditionally primary goods based economic production structure toward developing and leveraging more sustainable and lucrative value-adding capabilities. The ascension from the so-called middle-income trap took place in 2011 when it officially became classified as an upper-middle income economy. That rise in the standard of living for the Thai population necessarily implies an increase in the inclusivity and overall level of wealth distribution; GDP per capita at international purchasing power parity rose from roughly USD13,000 in 2011 to more than USD16,000 in 2015. Sourcing much of its competitive advantage from its local capacity to support the advancing transition away from the country's traditional reliance on exporting primary and intermediary goods toward a more value-added manufacturing sector is showing positive preliminary results. In response to a gradual rise in real wages in Thailand, mounting pressure on many companies both foreign and local to move operations to neighboring countries within the Cambodia, Myanmar, Laos, and Vietnam bloc (CMLV) in order to take advantage of lower labor costs has provided more of an impetus than ever for leaders of key sectors in the public and private spheres to focus on achieving necessary gains in terms of matching local conditions to global demand. Similar to the evolution of regional counterparts such as Malaysia, initiatives to enhance the role of the increasingly upstream value-added capabilities of the country's economy are positioning Thailand to better sustain future growth in the face of widespread macroeconomic volatility that has sent shockwaves throughout emerging markets across the world in recent years.

According to the Bank of Thailand, exports totaled USD212.1 billion in 2015, a sharp 5.7% YoY decline from the USD224.8 worth of Thai goods and services exported in 2014. Concurrent with the drop-off in exports during 2015, Thailand also sharply cut its import bill by 11.3% in 2015, down from USD200.2 billion in 2014 to just 177.5 billion in 2015. That roughly 40.65% YoY improvement of the country's trade balance from USD24.6 billion in 2014 to USD34.6 billion in 2015 comes at a particularly pivotal moment, as the country's newly formed government is betting its short to medium-term growth largely on state financing of a massive program of infrastructural development projects. The nearly USD10 billion in Thai capital made available thanks to its increased trade surplus together with the implementation of the government's growth and development strategic framework have had an immediate impact on the country's economy, with 2016 GDP growth forecasts being updated from initial estimates of 2.5% at the start of 2016 to 3.0% by the end of the first quarter.

Thailand's strategy of public spending on stimulus package-backed development initiatives is supported in large part by the country's sizable monetary reserves. At 29.4% of GDP, the Global Competitiveness Report ranked Thailand's USD44.901 billion 2014 net national savings the 26th best in the world. Its current account balance rose in dramatic fashion last year, more than doubling from USD15.4 billion in 2014 to approximately USD32.0 billion in 2015. Inflation, meanwhile, has remained relatively constrained in recent years, with the headline consumer price index increasing by 1.89% in 2014 and actually contracting by 0.90% in 2015. The Bank of Thailand is holding its forecast for inflation in 2016 to remain around negative 0.07%.

Thanks in large part to the sudden spike in the available investment opportunities in Thailand made possible by the government's spending strategy, Thailand received foreign investments into 159 projects in 2015, a 7% YoY increase from 2014 that made it together with Malaysia the eighth most popular destination for FDI within the Asia Pacific region. Meanwhile, USD13.9 billion of Thai capital went into financing 76 projects in foreign markets during 2015. The Global Competitiveness Report ranked Thailand 25th in the world for the strength of its investor protection and 25th for the efficiency of its financial market development, both key considerations moving forward for mediators of global capital flows in a region often marred by the opportunistic migratory patterns of hot capital. The challenge for leaders of academia, private industry, and public policy now becomes maintaining the already attractive conditions that have sustained national growth thus far, while outlining action plans for strengthening the capacity of the local economy to not necessarily attract greater levels of foreign direct investment per se, but rather to bring into the country capital financing that is feeding more valuable economic activities.

One of headline stories of recent years, the ASEAN Economic Community (AEC), of which Thailand is a founding member, officially came into effect on December 31, 2015. Similar to other massive international trade agreements such as the Trans-Pacific Partnership (TPP) and the Pacific Alliance in terms of the size and scope of its mandate and expected impact on the economies of its signatory countries, the statutory establishment of the AEC creates out of the foundations of the heretofore primarily politically-focused Association of Southeast Asian Nations an economic bloc with an estimated consolidated GDP of around USD7.6 trillion. The new agreement gives capital resources invested in the Thai economy the necessary ability to find their way to demand beyond the domestic market, which was itself ranked the 22nd most competitive domestic market in the world according the Global Competitiveness Report. A trend unfolding in much of the emerging-market world, Thailand is also propping much of its ambition for quick advancements of its commanding economic sectors, comprehensive public-private cooperation underlying the continued development of special economic incentives for priority industries, as is the case with the rapidly improving state of its cluster development, ranked 39th in the world by the Global Competitiveness Report.

Along with the AEC, the TPP has the potential to have a massive impact on the economy of Thailand. On October 5, 2015, Brunei, Chile, New Zealand, Singapore, Australia, Canada, Japan, Malaysia, Mexico, Peru, the US, and Vietnam finally came to an agreement on the economic policies of the TPP. However, Thailand was not one of these countries. TPP will establish an economic zone with lower trade barriers and tariffs as well as a common framework for intellectual property, labor standards and environmental law, and a dispute settlement mechanism. While members will enjoy access to some of the largest markets in the world, non-members will face higher tariffs and barriers to entry. One of Thailand's main concerns, however, is how to remain competitive with respect to its neighbors that are members. The potential for investments to move to neighboring countries that are members of the TPP is great. Vietnam and Malaysia will be specific threats as they both produce similar products and target the same markets. Currently, TPP accounts for 40% of Thailand's trading value, 10% of which is from the US, Mexico, and Canada; with whom Thailand does not currently have any FTAs signed. Higher tariffs will specifically harm garments, tuna, electrical appliances, vegetables and fruit, food preparation, footwear, and rubber gloves, according to the think tank Thailand's Development Research Institute (TDRI). In these segments, Vietnam could really benefit from Thailand's exclusion from the TPP. Still, Thailand has not been blocked from joining the TPP, and could potentially ask to join, which would most likely be granted. And while there are many advantages economically for joining, some experts worry there are certain disadvantages as well. “Joining the TPP will allow us to access the US market. On the other hand, the TPP is costly in terms of intellectual property protection. The TPP largely serves the interests of large US corporations and would limit the R&D potential of Thailand," Somkiat Tangkitvanich, President of TDRI, explained in an interview with TBY. The aspect of intellectual property has been one of the most controversial parts of the agreement. The agreement will allow for much longer patent and copyright restrictions, which some believe will restrict R&D and also hamper the pharmaceutical and healthcare sectors, which often rely on cheap generic drugs. How potentially damaging this could be only time will tell, but for some sectors it is certainly worrying.