Thailand Economic Outlook Q3 2016
Overall Thailand Economic Outlook Q3 2016
The Thai economy has continued to expand at an accelerating pace, despite numerous challenges facing the global economy. In 2015, the Thai economy grew by 2.8 per cent (USD 395.2 billion), a significant improvement from 0.8 per cent in 2014. With a 3.5 per cent expansion in the second quarter of this year, our economy has continued to perform well. It is forecasted that in 2016 our economy will grow between 3.0-3.5 per cent. The government’s stimulus measures and investment in mega-projects, as well as our vibrant tourism industry, will be major contributors to propel our economy this year.
Thailand’s economic fundamentals remain strong, as reflected in its high foreign reserves, as well as low unemployment rate. In 2016, the Thai economy enjoyed a significant improvement in international rankings. In particular, Thailand is ranked the happiest economy in the world for the second consecutive year, according the Bloomberg’s Misery Index. U.S. News ranks Thailand as the best country to start a new business, while Mastercard ranks Bangkok the 1st in its Global Destination Cities Index.
Economic Reform and Thailand 4.0
The Thai government commits to carrying out major economic reforms to enhance our competitiveness in order to overcome the middle income trap, and foster a favorable trade and investment climate. The key objective in the newly drafted 20-year national strategic plan is to drive the economy towards ‘Thailand 4.0’, or a valued-based economy driven by innovation.
Its policy objective is to increase national competitiveness and lift the growth potential of the economy in the long run. Thailand 4.0 is not merely an aspiration for innovative industrial development. The lesson Thailand had learnt from Thailand 3.0 model is that trade and investment must progress hand in hand with innovation and technology. Development based on heavy industry eventually leads to over-dependence on export markets, which is a significant source of economic risk, at the time when the global economy is slowing down.
To achieve Thailand 4.0, the Thai government is formulating and implementing multi-facet economic packages including:
- stimulus measures, particularly investment in megaprojects in transportation infrastructure and digital technology
- investment promotion measures to induce advanced research and innovation
- improvement of incentives and regulations to enhance Ease of Doing Business
- reform of financial regulations and the tax system
- establishment of Special Economic Zones (SEZs) and Super Clusters such as Food Innopolis
- establishment of International Headquarters (IHQ) and International Trading Centers (ITC) initiative
The Thai government has also introduced the mechanism of ‘Pracharat’, which is a Public and Private Partnership, as a substantive approach to address economic challenges and sustainable development issues. The mechanism is based upon the principle of inclusiveness, engagement, and cooperation between the government, the private sector and the public. Currently, twelve Pracharat working groups have been set up to coordinate work on important agenda such as innovation, SMEs, Startups, tourism and Meeting, Incentive, Convention, Exhibition (MICE), as well as export and overseas investment.
Thailand’s economic priority is to ensure sustainable development and inclusive growth, in accordance with His Majesty the King’s Sufficiency Economy Philosophy (SEP). The concept encompasses knowledge and virtue as a good and solid foundation, while moderation, reasonableness and prudence should always be embraced as key elements in the decision making process for achieving sustainability in all undertakings. His Majesty has put the above path into action through various Royal Projects.
Thailand has adopted Sufficiency Economy in its development approaches based on the principle of people-centeredness for over 40 years. It is called an explosion from within. People are the most important driving factor for development. Individuals and households must be strengthened first. Once the basic economy and society have been reinforced, development can occur at a higher levels, from provincial, regional, national levels to neighboring countries, the regional economy and the world.
Development based on Sufficiency Economy philosophy is in line with the UN’s 2030 Agenda for Sustainable development without leaving anyone behind. It is, by no means, the restriction of production and consumption. Its emphasis is to live life on the basis of knowledge, understanding, moderation, and reasonableness within the limitation of one’s own ability.
Foreign Investment Policies
During the first 7 months of 2016, foreign direct investment in Thailand has tripled and reached USD 3.8 billion, compared to the same period in 2015. In addition, applications for inbound investment promotion has increased by more than 200%, reaching over USD 8.6 billion. As the Thai economy continues to perform well, and Thailand has moved up to 28th position on IMD’s World Competitiveness ranking this year, confidence in the economy among investors is expected to remain strong.
The Thai government remains committed to fostering and ensuring a favorable business and investment environment, and offering excellent conditions for investors. Recently, the government has adopted the “Seven Year Investment Promotion Strategy (2015-2021)” which gives priority to investment in targeted industries, investment in research and development, advanced technology and innovation, as well as investment in a Special Economic Zone.
Thailand is currently in the process of revising the Investment Promotion Act which is expected to be effective later this year. Under the new Act, businesses will enjoy extra benefits, particularly those with investment in R&D, advanced technology and innovation, which could receive tax incentives for a period of up to 13 years, compared to 8 years under the present Act. In addition, businesses having expenses related to R&D may claim up to a 300% tax deduction, which is arguably the world’s largest incentive of this kind.
The government has also provided significant tax incentives, which in some cases amounts to complete exemption from corporate income tax for up to 15 years, to businesses that set up their international headquarter (IHQ) or international trading center (ITC) in Thailand.
Division of Economic Information
Department of International Economic Affairs