What Happened To The Economy In Thailand?

Thailand’s Prime Minister Setha Taweesin, has acknowledged that the country’s economy is in what can be referred to as a crisis, technically, according to the definition of an economic recession, they are not yet in a crisis. However, they are heading towards one.

GDP Growth

The foremost indicator of a country’s economic health is its Gross Domestic Product (GDP) growth. To classify a country as facing an economic crisis, it must exhibit negative GDP growth for two consecutive quarters. As it was in 2021, if the negative growth is consecutive, the country is considered to be in a recession. However, if there’s a negative quarter followed by a positive one, technically, it’s not in a recession.

Despite this, why is Thailand’s Prime Minister so concerned? The GDP growth trend for Thailand is decreasing. If left unchecked, it may very well slip into the negative again.

Inflation Rate

The main indicator suggesting that Thailand’s economy is facing issues is its inflation rate. If we observe closely, the country has been dealing with a negative inflation rate for three consecutive quarters. When inflation is negative, it’s referred to as deflation.

Deflation signifies a drop in aggregate demand, meaning people are less interested in buying goods and services. This decrease in confidence leads to a drop in aggregate demand, causing the inflation rate to fall. When the inflation rate becomes negative and continues to grow, it highly likely that the GDP growth will turn negative.

Government Solutions

What solutions does the Thai government propose? As announced by Prime Minister Sereta Thavisin, they plan to distribute free money to citizens through digital wallets. This is an effort to boost consumer spending power. When people receive money, they tend to spend it, which should, in theory, push the inflation rate back up and out of the negative zone.

Initially, the government planned to launch this program in the first quarter of 2024, specifically in February. However, due to certain issues, the launch has been postponed to May. It’s speculated that the delay is due to challenges in securing the necessary funding for this initiative.

However, this action is expected to worsen the government’s fiscal position. Still, there’s another measure that they must take to prevent further economic problems.

Interest Rate

Thailand needs to reduce its interest rates. This move echoes the actions taken by Bank Negara Malaysia and other countries, which increased their interest rates after the COVID-19 phase. However, Thailand is among the countries that still haven’t fully recovered from the economic crisis caused by the pandemic.

Reducing the interest rate encourages borrowing, injecting more liquid money into the economy, and subsequently increasing the spending power of the Thai people.

For example, when the U.S. faced a similar situation during the 2008 financial crisis, the Federal Reserve slashed interest rates to near zero. This move was designed to make borrowing cheaper and stimulate spending, helping to boost the economy.



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