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Thailand faces a critical challenge in reversing its long-term decline in growth potential. To secure a prosperous future and achieve high-income status within the next two decades, Thailand must prioritize revitalizing its economic engines and aligning its export strengths with emerging global trends. The time to act is now.

Thailand stands at a critical juncture, facing a stark choice between continued economic sluggish performance and renewed prosperity. As technological and geopolitical trends reshape global economic landscape, the country’s current economic model is under threat.

Without bold actions, Thailand risks being stuck as a middle-income economy, unable to compete with faster growing developing economies or with advanced economies in high-value sectors.

The imperative for policymakers is clear: redirect policy focus from short-term fixes to comprehensive, long-term structural reforms that can revitalize Thailand’s growth engines and secure a prosperous future for its people.

Waning potential: the decline in Thailand’s growth prospects

Over the past two decades, Thailand’s growth trajectory has been on a disconcerting downward path. The average 10-year-ahead consensus GDP growth forecast for Thailand has plummeted from 5.4 percent in 2005 to a mere 2.4 percent in 2024 (Figure 1). This stark decline contrasts with that of other ASEAN economies, which have maintained an average long-term growth forecast of about 4.0 percent. Notably, Thailand’s trend growth has reset to a lower path after each major crisis, never regaining its previous vigor (Figure 2).

The weakening growth potential can be attributed to several interconnected factors. Both private and public investments have remained lackluster since the Asian Financial Crisis in late 1990s which left a deep scar in the economy. Private investment, which averaged 30.0 percent of GDP in the decade prior to the crisis, struggled to surpass 21.0 percent in recent years. Public investment has also underperformed, often affected by political changes and budget delays.

Demographic headwinds have turned Thailand’s once-favorable population dynamics into a drag on growth. The old dependency ratio has nearly doubled since 2000, while the working-age population peaked in 2019. These trends are expected to reduce labor supply, potentially hampering productivity, and increase fiscal burdens.

Moreover, the structural transformation that once drove productivity growth has stalled. Labor reallocation from agriculture to higher-productivity sectors has stagnated since 2015 (Figure 3), eroding a key growth driver that has previously accounted for over half of Thailand’s productivity gains in a quarter of a century (Figure 4).

Agriculture’s disproportionate share of employment versus output—30.0 percent of the labor force but only 8.6 percent of GDP as of 2023—underscores persistent sectoral imbalances. Its productivity is only a fraction of other sectors, with output per worker at just 19.0 percent and 23.0 percent of industry and services sectors, respectively.

Compounding these challenges, global shifts toward clean energy and advanced technologies are eroding Thailand’s traditional export strengths, particularly in sectors like internal combustion engine vehicles and hard disk drives.

Charting the course: scenarios for Thailand’s future

To investigate the long-term implications of these challenges, we conducted a scenario assessment to explore different growth trajectories for Thailand (Figure 5).

Under the current trajectory (baseline scenario), Thailand is projected to miss its target of achieving high-income country status by 2037. Our analysis suggests that Thailand’s gross national income per capita will reach only about USD 13,600 by 2037, falling short of the estimated high-income threshold of approximately USD 18,500 for that year.

At this rate, Thailand may not reach high-income status until 2050. Even more concerning, our downside scenario, which assumes stalled reforms and continued underperformance, suggests that Thailand could remain stuck in its current income category well beyond 2050, highlighting the urgent need for action.

However, this somber outlook is not set in stone. An upside scenario with bold reform initiatives and more forceful implementation of investment projects could accelerate Thailand’s journey to high-income status, potentially achieving it by 2042. This scenario assumes successful implementation of key structural reforms, improvements in education and skills training, acceleration of structural transformation, and more effective execution of planned investments.

Blueprints for success: revitalizing Thailand’s economic engines

To reverse the secular decline in its long-term growth potential, Thailand must focus on several key policy areas. Revitalizing structural transformation is crucial to the modernization of traditional industries and to facilitate resource movement from low- to high-productivity sectors. This includes boosting agricultural productivity, accelerating labor movement to more productive sectors, and shifting manufacturing toward new growth engines.

Priority should also be given to foster innovation, human capital accumulation, and infrastructure upgrades. This includes lifting restrictions on services FDI, expanding support for innovative start-ups, and improving the pool of high-skilled labor.

Strengthening the implementation of development plans through close coordination across all levels of government and stronger collaborative efforts between the private and public sectors will be crucial to ensure consistent and coherent execution of development strategies.

Thailand must re-engineer its existing export strengths to align with emerging global trends. This involves rapidly upgrading capabilities in auto and electronics manufacturing to meet the demands of electric vehicles and advanced semiconductors. Simultaneously, Thailand should leverage its emerging renewables sector, positioning itself as a leader in clean energy technologies.

A new chapter: Thailand’s path to prosperity

Thailand’s economic future hinges on its ability to implement bold structural reforms and revitalize its growth engines. While the task ahead is challenging, it also presents an opportunity for Thailand to reimagine its economic landscape, reinvent itself in keeping with global technological trends, and secure a more prosperous future for its people. The time for decisive action is now. Through comprehensive reforms and an unwavering commitment to implementation, Thailand can break free from its current growth trajectory and chart a path to high-income status.

* This blog is based on the findings of AMRO’s 2024 Annual Consultation Report on Thailand.