GROUP ASSIGNMENT
[September-November 2024 semester]
PRINCIPLES OF MACROECONOMICS
DBB2023
Lecturer : Mrs Rita Nunkoo
NAME STUDENT ID
Fardeen Toraubally 2023_4159_4259
Parvesh Purlackee 2023_3628_4237
Khushaal Bollowont 2023_7213_4261
Submission Date:16 October 2024
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Introduction
Thailand, known as the "Land of Smiles," is a Southeast Asian nation that has undergone
significant economic transformation over the past few decades. As the second-largest
economy in the region, following Indonesia, Thailand plays a pivotal role in the economic
landscape of Southeast Asia. This comprehensive overview will detail Thailand's economic
context , recent performance, and the challenges it faces, providing a clear background for
understanding its current position in the global economy.
Economic context
Thailand is Southeast Asia's second-largest economy after Indonesia, and with an upper-
middle class, it acts as an economic anchor for its growing neighbours. According to the IMF,
the country's economy appears resilient, with growth expected to be 2.7% in 2023, slightly
higher than 2.6% the previous year, as the contraction in investment and goods exports
caused by the slowdown in external demand offset the robust private consumption growth
following the tourism recovery. The growth forecast for 2024 is 3.2%, boosted by increases in
foreign demand and continuing solid growth in private consumption, followed by 3.1% in
2022 (IMF).
In terms of public finances, the IMF expects the general government deficit to reach 1% of
GDP in 2024, up from 0.3% in 2023. This rise is due to increased spending, accommodating
programs such as the digital cash giveaway plan, and other policies supported by coalition
parties during the election campaign. As expansion accelerates, these expenses are likely to
outpace stable revenue collection. The IMF expects the budget deficit to rise to 1.2% in 2025,
owing mostly to continued social and capital investment. The debt-to-GDP ratio grew to
61.4% last year, up from 60.5% in 2022, and is predicted to rise further in 2024 (62.9%).
Thailand's strong external position remains a key asset, providing a significant cushion
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against tightening global financial conditions and geopolitical concerns. In 2023, headline
inflation reached 1.5%, aided by continuous efforts to keep energy costs low and
improvements in global supply systems. As economy improves in 2024, headline inflation is
expected to rise slightly to 1.6%.
The unemployment rate remained exceptionally low in 2023 (1.2%) and is expected to
remain around 1% during the predicted period (IMF). Thailand's official unemployment rate
is among the lowest in the world, owing to low birth rates, a lack of social insurance, and the
informal sector, which employs the majority of the workers. The World Bank anticipated that
the country's average GDP per capita (PPP) would be USD 20,672 in 2023. Thailand has
achieved the most progress in ASEAN's poverty eradication in recent years, with a poverty
rate of 6.3% of the population.
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Source: IMF – World Economic Outlook Database, October 2021
Main Sectors of Industry
Thailand has a work force of 40.2 million individuals out of a total population of 71.6
million. Agriculture accounts for 8.8% of the GDP and employs 32% of the active population.
The country is the world's largest producer of natural rubber and one of the main producers
and exporters of rice; it also produces sugar, maize, jute, cotton, and tobacco as key crops.
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Fishing is an important business in Thailand since the country exports a lot of farmed shrimp.
Traditional agricultural practices are still widely used, although there is a rising emphasis on
modernizing agriculture via the use of technology such as precision farming and irrigation
systems.
The manufacturing sector accounts for 35% of GDP and employs 23% of the labor force
(World Bank). The country has positioned itself as a manufacturing powerhouse in Southeast
Asia, drawing global investment due to its strategic location, talented people, and strong
infrastructure. The Thai industrial sector is broad and vigorous, with manufacturing,
electronics, automotive, and petrochemicals among its important industries. Renewable
energy, biotechnology, and aerospace are emerging areas in Thailand's economic landscape,
reflecting the country's aspirations to transition to high-value-added businesses and technical
innovations. Thailand's industrial output fell 5.1% in 2023, owing to a sharp dip in computer
and peripherals, electronic parts, and furniture manufacture (official figures).
The tertiary sector accounts for 56.2% of the GDP and employs 46% of the active population
(World Bank). Tourism, banking, healthcare, education, and telecommunications are among
the key sectors. Thailand's tourism industry is a significant driver of the tertiary sector,
attracting millions of tourists each year. According to official government projections, the
country will welcome over 28 million foreign visitors in 2023, producing an amazing income
of more than THB 1.2 trillion. Bangkok serves as a regional financial hub, with a diverse
variety of banking, insurance, and investment services. Thailand is a popular location for
medical tourism and has prestigious colleges and foreign schools. Digital services, e-
commerce, and fintech are examples of emerging tertiary sector industries.
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Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages
may be smaller/greater than 100%.
Impact of Recession on Key Macroeconomic Issues in Thailand
Unemployment
From 1977 to 2024, Thailand's unemployment rate maintained a very low level, hovering
between 1.2% and 2.15% on average. However, during times of economic instability, the rate
saw significant increases. The unemployment rate rose sharply, peaking at approximately
4.8% in 1999 as many businesses collapsed due to excessive foreign debt and currency
devaluation. The COVID-19 pandemic, for example, caused the unemployment rate to
skyrocket to almost 1.9% at the beginning of 2021. This was a direct result of the terrible
impact that the pandemic had on industries such as tourism, which employs a significant
amount of the workforce.
It is clear that the Thai labor market has shown resiliency in spite of these volatility. A
significant number of workers have demonstrated a high degree of mobility in their search for
new employment possibilities, and the informal sector has been an essential component in the
process of shock absorption. In spite of this, nearly 61% of Thais have reported losing their
jobs as a result of the current economic conditions in the previous six months, which
indicates that the consequences of the recession are still being felt by a large number of
people.
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The Thai labor market suffered greatly during the Covid-19 pandemic in a variety of areas,
including working hours, employment availability, and labor income losses. But when it
came to the underlying picture of labor market slack, conventional measures like the
unemployment rate fell short. Therefore, other metrics, such the percentage of
underemployed people and the projected labor income loss, were used to assess the state of
the labor market.
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Some slacks during the pandemic
Source:NSO
The second quarter of 2020 saw a record high for the number of underemployed workers
(Graph 3.A). Due to containment efforts, some businesses—especially those in the services
industry and among independent contractors—were forced to temporarily close, and many
employees saw a reduction in hours worked. Approximately 0.8 million people were jobless
at the peak, while over five million individuals were underemployed. As a consequence of the
latter, the unemployment rate nearly doubled to 2.0%, with about one-third of jobless workers
being recent graduates (Graph 3.B).
As a result, it was predicted that total labor income fell significantly in 2020 (Graph 3.C).
Furthermore, the income losses varied depending on the industries and professions. The
severe drop in foreign visitors and the strict containment measures had a significant impact
on self-employed workers and workers in the tourism-related industries.
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Inflation
Thailand's currency, the baht, depreciated sharply during the 1997 Asian Financial Crisis as a
result of speculative attacks. The decline resulted in imported inflation, as the cost of goods
and services from abroad increased. Inflation rose sharply, reaching over 8% in 1998, owing
to higher import costs. This inflation weakened consumer purchasing power, exacerbating the
economic crisis as real wages decreased and unemployment increased. In response, the Thai
government and the International Monetary Fund (IMF) pursued tight monetary measures to
stabilize the baht, including hiking interest rates. While this reduced inflation, it exacerbated
the slump by lowering domestic demand and investment. Thailand's recovery was sluggish,
with inflation moderated as structural reforms were implemented, but at the cost of protracted
economic stagnation.
During the COVID-19 recession in 2020, Thailand faced deflationary forces rather than
inflation. As global and domestic demand dropped, particularly in crucial areas such as
tourism, consumer prices declined by around 0.8% in 2020. The immediate issue was
reducing prices, not inflation. While certain locations saw brief price rises owing to global
supply chain disruptions, they were insufficient to induce widespread inflation. The Bank of
Thailand responded by cutting interest rates and adopting monetary stimulus to boost the
economy. The government also implemented massive fiscal stimulus packages to support
firms and consumers, prioritizing economic recovery over inflation fears. The collapse of the
tourist sector, which normally drives demand for goods and services, contributed to lower
inflationary pressures.
Thailand's headline inflation reached an all-time high in 2022, joining other mature and rising
countries around the world. Figure 1 shows a large reduction in headline inflation in
Thailand around two decades ago, corresponding with the Bank of Thailand's introduction of
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flexible inflation targeting in May 2001. Thailand's headline inflation rates converged with
those of advanced nations, resulting in improved international synchronization. Global links
and commodity price cycles have a significant influence in influencing global inflation rates,
as seen by this synchronization. Following the epidemic and Russia's invasion of Ukraine,
global supply issues have led to unprecedented levels of inflation across countries. Thailand's
headline inflation hit a 14-year high of 7.8 percent in August 2022 (y/y) and stayed excessive
for 7 months before reverting to the Bank of Thailand's goal range of 3 percent in March
2023. Global inflation peaked at 8.7 percent in 2022.
Figure 2 compares core and headline inflation rates in Thailand. Core inflation decreased
with headline inflation in the early 2000s, but has subsequently diverged.
Headline inflation has remained consistently higher than core inflation, with variable
dynamics. Since implementing the inflation targeting system, headline and core inflation
have averaged 2.1 percent and 1.1 percent, with a range of 4.8 and 0.8 percent, respectively.
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The LHS Figure 2 shows that headline inflation is mostly driven by raw food and energy
prices, whereas core inflation has remained steady.
Economic Growth
During the 1997 Asian Financial Crisis, Thailand's GDP contracted significantly. The crisis
began with the Thai baht's fall, which went from THB 25 to THB 56 per USD in a matter of
months. As a result, GDP fell by about 10.5% in 1998, one of Southeast Asia's biggest
decreases. The economy decreased from THB 3.115 trillion at the end of 1996 to THB 2.749
trillion at the end of 1998. The crisis resulted in a considerable increase in unemployment,
which nearly tripled from 1.5% in 1996 to 4.4% in 1998, suggesting widespread layoffs as
firms tried to deal with lower consumer demand and financial uncertainty. Thailand didn't see
positive GDP growth again until 1999, at roughly 4.2%, when recovery initiatives began to
take impact. However, it took nearly a decade for GDP to recover to pre-crisis levels in dollar
terms.
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By GiovanniMartin16 - Own work, CC BY-SA 4.0,
By Max Roser - Our World in Data, CC BY-SA 3.0,
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The COVID-19 recession posed a unique combination of obstacles for Thailand's economy.
Thailand's GDP fell by almost 6.1% in 2020, making it one of the most dramatic drops
among ASEAN countries. Lockdowns and limitations on travel and commerce caused
enormous economic disruptions. The tourist industry, which amounts for around 20% of
GDP, was badly damaged, with overseas arrivals dropping by more than 80% during peak
lockdown hours. This downturn had a severe impact on domestic consumption and
investment. By 2022, Thailand's economy was showing signs of recovery, with GDP growth
recovering to around 2.6%, aided by rising tourism and private spending as restrictions were
lifted. However, growth predictions for the coming years remained cautious due to persistent
global economic uncertainty.
Source: Macrobond
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Macroeconomic Policies for Thailand
Thailand's economy faces several challenges, including low productivity, high public debt,
inflationary pressures, and a reliance on tourism and exports. Effective macroeconomic
policies are essential to address these issues and promote sustainable growth.
Key Economic Challenges
1. Low Productivity and Investment: Private investment in Thailand has been
sluggish, with low productivity development, notably in the industrial sector. This
stagnation is ascribed to insufficient governmental investment and a lack of trust in
firms to invest in productive capacity.
2. High Public Debt: Public debt has risen to more than 60% of GDP, owing mostly to
pandemic-related assistance measures. While the administration intends to boost
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public expenditure, there is a need for budgetary discipline to prevent debt
accumulation.
3. Inflationary Pressures: Inflation continues high, driven by rising living and energy
expenses. Headline inflation was recorded at 6% in late 2022, one of the highest in the
ASEAN area.
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4. Tourism Dependence: The economy is strongly reliant on tourism, which has yet to
recover entirely following the epidemic. In 2023, foreign visitor arrivals were only
approximately 70% of pre-pandemic levels, impacting overall economic development.
Proposed Macroeconomic Policies for Addressing Economic Issues in Thailand
Thailand's economy is now facing numerous important problems, including the aftermath of
the COVID-19 recession and ongoing issues such as excessive household debt, slow growth,
and rising inflation. To properly address these economic challenges, a mix of fiscal and
monetary measures is required. This research suggests macroeconomic policies customized to
Thailand's existing economic situation, illustrating how they might address identified
challenges and promote long-term growth.
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1. Fiscal Policy Measures
Targeted cash transfers and social assistance programmes
One of the most immediate and successful budgetary initiatives is the delivery of targeted
cash transfers to low-income households. The Thai government has previously suggested a
500 billion baht ($14.05 billion) handout plan aiming at delivering 10,000 baht to 50 million
Thais. This method immediately targets high levels of family debt and increases consumer
spending, which is vital for economic recovery.
By raising disposable income, these cash transfers can help reduce financial stresses on poor
communities while stimulating domestic demand. For instance, during the COVID-19
pandemic, social assistance programs played a vital role in avoiding a dramatic rise in
poverty rates; without these actions, poverty may have reached 8.1% in 2021, substantially
higher than observed levels. Expanding and refining the targeting of social assistance
programs will be vital for boosting economic recovery and decreasing inequality.
Infrastructure Investment
Investing in infrastructure improvements may also be an effective budgetary instrument for
stimulating economic growth. Between 2020 and 2027, the Thai government plans to invest
around THB 1 trillion (USD 30 billion) on 77 mega-infrastructure projects. These initiatives
not only create employment, but they also boost long-term productivity by boosting
connections and lowering logistics costs for businesses.
For example, The Thai government has proposed fresh investment plans totaling 652 billion
baht (about EUR 17 billion) to be allocated over the next two years for the construction of
150 infrastructure projects. Among the major railway projects, the government intends to
invest 300 billion baht (EUR 8 billion) in the Thai-Chinese mega high-speed railway
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infrastructure, which will connect Nakhon Ratchasima and Nong Khai as part of the Belt and
Road Initiative. In addition, the Bangkok-Ubon Ratchathani high-speed train is planned,
which will cut travel time from 12 hours to 2 hours and cost an estimated 37.5 billion baht
(EUR 987 million). Other notable infrastructure projects include a double-track railway
between Khon Kaen and Nong Khai, expected to cost over 29 billion baht (EUR 763
million), and the Orange Line project between Bang Khum Non and Min Buri, estimated to
cost around 140 billion baht (EUR 3.6 billion). The Thai government wants to provide
financial support through a combination of state money, loans, and public-private
partnerships (PPPs).
2. Monetary policy measures
Adjusting Interest Rates
The Bank of Thailand has taken a conservative approach to monetary policy, keeping a low
policy rate of 2.50% as of early 2024. This rate is thought appropriate for promoting
economic growth while keeping inflation under control. However, given the high levels of
household debt (estimated at 86.8% of GDP), any rate rises must be carefully considered.
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Maintaining lower interest rates can stimulate borrowing and investment by consumers and
businesses, which is crucial for encouraging economic activity during periods of slow
development. For instance, lower interest rates make loans more accessible for people
wishing to purchase houses or vehicles and for firms seeking to invest in expansion or new
technology. The central bank should continue to monitor inflation closely while being
prepared to change rates as required to assist recovery without aggravating debt burdens
Credit Guarantee Schemes for SMEs
Small and medium-sized firms (SMEs), which are critical for job development and economic
stability in Thailand, continue to face major loan access challenges. The Bank of Thailand
should create targeted credit guarantee schemes to encourage lending to SMEs while
reducing risks for financial institutions.
By guaranteeing loans made to SMEs, the government may encourage banks to lend more
freely, therefore promoting company development and job creation. For example, during the
COVID-19 epidemic, the Thai government implemented measures like as the SME Loan
Guarantee Program, which intended to guarantee loans of up to THB 150 billion ($4.3
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billion) for SMEs affected by the crisis. This strategy corresponds with the requirement for
long-term growth by ensuring that small firms have access to the cash they require to prosper.
3. Structural Reforms
In addition to fiscal and monetary policies, implementing structural reforms is essential for
addressing long-term challenges within Thailand's economy:
Enhancing Education and Skills Training
Investing in education and skill training programs can assist to boost staff productivity and
flexibility in a highly competitive global market. The Thai government should encourage
vocational training programs that are relevant to business demands, particularly in
technology-driven industries like digital services and renewable energy.
Partnerships between educational institutions and private firms.
For example, can permit internships and apprenticeships that provide students hands-on
experience while also alleviating labor shortages in critical areas.
Promoting Innovation and Technology Adoption
Encouraging innovation via research and development (R&D) funding may boost
productivity across several industries. The government should explore providing tax breaks to
corporations who invest in R&D or adopt modern technology.
South Korea's innovation strategy is a successful example, since it has resulted in substantial
advances in technology-driven industries such as electronics and automobile manufacture.
Thailand can improve its global competitiveness by creating an atmosphere that encourages
innovation.
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Conclusion
To conclude, Thailand's economic recovery and future development depend on a
multidimensional approach that incorporates fiscal stimulus, monetary assistance, and
structural changes. Lessons learnt from prior recessions will be crucial as policymakers
attempt to construct a solid economic framework that not only solves current issues but also
provides the groundwork for sustained development and inclusion in the years to come. By
adopting these techniques, Thailand can manage its current economic situation while
preparing itself for resilience against future shocks.
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