Thailand

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November 2014

Thailand rebounded strongly following the deep recession brought on from the 1997 Asian financial crisis and then the 2008 great recession; but it has struggled since to reach the growth achieved in the early nineties. GDP per capita has more than doubled over the last 10 years to US$ 5700, catapulting Thailand into upper-middle-income status. Thailand performs well relative to its regional peers, with favourable business conditions and solid ratings. But, unfavourable demographics and inadequate capital will probably keep it from reaching high-income status.

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This chart is a cobweb diagram showing how a country measures up on four important dimensions of economic performance — per capita income, compound annual GDP growth, business climate and creditworthiness. Per capita income is in current US dollars for 2013 as provided by the IMF. Compound annual GDP growth is measured over the 15 years to 2013. Business climate is measured by the World Bank’s Ease of Doing Business ranking of 189 countries. Creditworthiness attempts to measure a country's ability to honour its external debt obligations and is measured by its OECD country credit risk rating. The chart shows not only how a country performs on the four dimensions, but how it measures up against other comparable countries.

Economic outlook

Political turmoil and violence in the first half of 2014 caused the economy to slow dramatically. The military coup in May, however, has restored a sense of calm and the junta’s pro-growth policies are expected to lift domestic spending over the near term. Externally, firming global growth should support exporter incomes.

Thailand’s institutional framework is poor. Uncertainty from the long history of political unrest raises the risk-premium of investing in Thailand. Global investors were willing to overlook this when risk appetite was elevated in the lead up to the 2008 Great Recession. Since then however, a higher political risk premium and the rise of Vietnam, Laos, Cambodia, and African countries as investment alternatives will likely hurt foreign interest in Thailand, leaving the economy susceptible to capital outflows.  

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The economy suffers from physical and human capital shortages and scores poorly on international comparisons of education and property rights. Insufficient investment in infrastructure—partly related to the tumultuous political landscape—and ageing population are other factors that will keep GDP per capita below US$10,000 over the next decade.

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Business climate

Thailand has investment grade status from all three major ratings agencies and has an OECD country credit grade of 3. This suggests a relatively low likelihood that it will be unable or unwilling to meet its external debt obligations in a systemic sense (though, needless to say, individual debtors can and do default).

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This chart looks more closely at creditworthiness. It shows the country’s long-term foreign currency sovereign credit rating from each of the three major ratings agencies. It also gives the country’s OECD country credit risk rating. Basically, the longer the bar, the more creditworthy the country.

The World Bank’s ease of doing business gauge — which measures regulation and red tape relevant to a domestic small to mid-sized firm — ranks the Thai business climate 18th out of 189 economies. Thailand outperforms its regional peers in all areas, although it takes alomost 28 days to start a business, relative to six in neighbouring Malaysia.

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Another cobweb diagram, this chart unpacks different aspects of a country's business climate as incorporated in its World Bank Ease of Doing Business Index. It provides a good set of measures of the operational risks of doing business in various countries, especially for small and mid-sized businesses.

In contrast to its strong ranking for “doing business”, Thailand scores poorly on broader governance. On the World Bank’s governance gauges, it is in the bottom half of most areas of governance and performs particularly poorly on measures of political stability, voice and accountability. It scores better on regulatory control and government effectiveness.

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This chart shows how a country measures up on five important measures of institutional strength — voice and accountability, political stability, government effectiveness, regulatory quality, rule of law, and control of corruption. The measures come from the World Bank’s governance indicators.

Bilateral relations

Thailand and Australia signed a Free Trade Agreement (TAFTA) in 2005 gradually eliminating tariffs on Australian exports into Thailand. This gives exporters of horticulture, dairy, mining, processed food and beverages an edge over their European and North American rivals.

Thailand is Australia’s eighth largest trading partner. In 2013, Australian merchandise exports to Thailand totalled US$4.8b (1.9% of the total). Major exports included gold (US$1.1b) and crude oil (US$1.1b).

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Australia also exported approximately A$680m of services to Thailand in 2013 — of which A$530m was education exports. Thailand is Australia’s fifth largest source of international students — with 22,000 enrolments in 2013 (4% of total).

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Thai visitors to Australia spent A$100m in 2013. Visitor arrivals rose to 77,000 in the year to May 2014, up 8% from the year before.

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In terms of foreign investment stocks, Thailand is a marginal investor in Australia, owning a portfolio of just A$6b in 2013 (0.2% of the total foreign investment stock). Australia’s largest investors remain traditional markets — the US with A$658b and the UK with A$563b. But regional flows are expanding quickly — ASEAN contributed 4% of inward foreign investment flows in 2013.

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Thailand is a minuscule destination for Australian investment abroad (0.2% of the total in 2013). Australia’s investment in Thailand rose marginally to A$2.9b (of which 58% was FDI). The US (A$472b) and UK (A$256b) remain the leading destinations for Australia’s foreign investment, while investment stocks in ASEAN countries rose 30% over the year to 2013.

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