World Bank rings alarm on GDP view

The World Bank has warned that Thailand's average annual economic growth will be stuck below 3% if there is no significant increase in investment and productivity growth.

The recent growth slowdown suggests long-run structural constraints, with slowing investment and low productivity growth, according to the World Bank's Thailand Economic Monitor report.

Productivity growth fell to 1.3% during 2010-16 from 3.6% during 1999-2007. Private investment has halved from 30% of GDP in 1997 to 15% in 2018, as foreign direct investment slowed and progress stalled on projects related to the Eastern Economic Corridor.

The government has worked to ramp up investment from state agencies and enterprises, particularly in big-ticket infrastructure projects and through the targeted 12 S-curve industries, in hopes of triggering an investment spree, improving productivity and boosting economic growth sustainably.

The country's economy grew by 2.5% for the Januaryto-September period of 2019, dampened by an export slump that stemmed from the global economic slowdown and USChina trade tensions, elevated household debt weighing on domestic consumption and weak investment after a months-long delay in annual budget spending for fiscal 2020.

To become a high-income country by 2037, Thailand will need to sustain long-run growth rates of above 5%, which would require a productivity growth rate of 3% and for investment to make up 40% of GDP, said Kiatipong Ariyapruchya, a World Bank senior economist for Thailand.

"Boosting productivity will be a critical part of Thailand's long-term structural reform," he said. "Increasing productivity, particularly among manufacturing firms, will depend on increasing competition and openness to foreign direct investment and improving skills."

The global lender recommends higher productivity growth to remove constraints that prevent new firms, especially foreign companies and skilled professionals, from entering Thailand's market.

Lifting restrictive laws, particularly in the service sector, and implementing a new Competition Act with clear guidelines related to state-owned enterprises and price controls would eliminate these constraints, Mr Kiatipong said.

The country needs to develop policies to build skills and human capital for an innovative knowledge-based economy. In particular, Thailand must develop scientific knowledge, which is a barrier to the country's R&D investment.

Thailand's scientific knowledge and skills in the field are inferior to those of peer nations, Mr Kiatipong said.

The World Bank has downgraded Thailand's economic growth outlook for this year to 2.7%, but the latest revised figure is still higher than the bank's growth estimate of 2.5% for 2019.