Thailand Economic Outlook 2020

The German-Thai Chamber of Commerce (GTCC) organised the seventh Thailand Economic Outlook Luncheon on 27 February 2020 at the Rosewood Hotel Bangkok. The luncheon together with a panel discussion attracted about 120 guests from a variety of business sectors as well as from eight bilateral Chambers of Commerce in Thailand.

GTCC President, Mr. Markus Lorenzini, opened the event by welcoming the guests and speakers, and in particular the keynote speaker, Ms. Birgit Hansl, Country Manager for Thailand, East Asia and Pacific at the World Bank. Mr. Lorenzini pointed out that, in line with the global economic slow-down, Thailand’s economy experienced its slowest growth since 2014, with a rate of 2.4 per cent due to a decline in imports and exports. Despite a decrease in German-Thai trade and investments last year, Germany remains Thailand’s biggest trading partner in the European Union. Major investments by German companies in Thailand in 2019 included Mercedes-Benz, Continental Tyres, BMW Group and Covestro.

Moreover, Mr. Lorenzini emphasised the serious impact of the Covid-19 outbreak on trade and global supply chains, especially those involving China. The outbreak is expected to slow the growth of the Thai economy to 1.9 per cent instead of an earlier estimate of 2.7 per cent. Ms. Birgit Hansl delivered a keynote speech on “Thailand: A Business Hub Ready for the Future?” She focused on a global economic outlook and accentuated Thailand’s high integration into the global economy and global value chains, making the economy very susceptible to global trends. Forecasts for the global economy in 2020 only show minor improvements compared with the economic downturn in 2019. The Covid-19 outbreak poses a new challenge to the global economy, she added.

At a global level, the creation of the number of innovations has been decreasing, resulting in low productivity growth. As these factors contribute to stagnation of wage development, household consumption is declining.

At the regional level, Ms. Hansl stated that the decreasing growth projections for China would strengthen the growth of other economies within the region. She emphasised the impor tance of public spending in Thailand, the Philippines, Cambodia and Vietnam in order to boost the domestic economy as well as to subsequently increase domestic consumption.

The global slowdown in productivity development has also highly affected the Thai economy. In the past, Thailand’s weak

growth in investments during the past two decades accounting for 20 per cent, compared with a 40 per cent growth rate in the 1990s. As a result, Thailand’s innovation activities have been diminishing along with its productivity development.

In this context, Ms. Hansl pointed out the significant role of policy-making. First, some policies worsen this situation as they retain the workforce in unproductive sectors such as agriculture, and thus keep them from developing skills that could be of advantage in more productive sectors. Second, a so-called “cleaning of the business cycle” in the Thai manufacturing sector has been hindered, as highly productive firms struggle to survive in this sector and eventually exit the market, whereas unproductive firms remain. This issue is closely connected to the market dominance of just a few firms in certain sectors in Thailand. Therefore, it becomes highly relevant for the Thai government to introduce policies that promote productive firms as well as determine what keeps innovative firms from being successful.

Ms. Hansl noted that in order to further enhance Thailand’s role as an attractive destination for foreign direct investment, and in order to become a global hub, the

Government would have to address three main challenges and factors.

First, the shortage of skilled labour presents a severe limitation to Thailand’s development as a global production hub. As global value chains are changing drastically, the focus of the industry is shifting towards high value-added production that requires a highly skilled labour force. It should focus on high-quality education and training of workers.

Second, investors in the South-East Asian region look for high governmental transparency in their choice of an investment destination. This need should be taken into account in regulations and policy-making.

Third, intellectual proper ty rights are evolving in an era of constant technological development, thus creating another determining aspect in the choice of an investment destination and making them another important field in policy-making.

Ms. Hansl concluded that Thailand’s strong monetary policy support will be beneficial to the country’s future macroeconomic development. However, she strongly emphasised the importance of implementing regulations that would strengthen Thailand’s capacity to react to global megatrends and position the country as an attractive destination in terms of foreign direct investment.

The three-course luncheon was followed by a panel discussion on the challenges ahead for 2020, which was moderated by Mr. Joerg Ayrle, CFO ofThai Union Group. The panelists included: Mr. Lorenzini, President and CEO at Siemens Ltd. Thailand, Cambodia, Myanmar; Mr. Alexander Donau, Regional Head AsiaPacific and Director of the Board at Leschaco (Thailand) Ltd.; Mr. Andreas Lettner, CEO at Mercedes-Benz Manufacturing (Thailand) Limited; and Mr. Stefan Molnar, General Manager Thailand, the Philippines, Vietnam and the Mekong Region of the Lufthansa Group.

The panelists formed a consensus that despite the global economic slow-down, 2019 was still successful. Regarding the airline, automotive and logistics industries, they highlighted the emergence of new consumer behaviour, rising environmental awareness and the need to react to these trends.

Next, Mr. Ayrle discussed the results of the GTCC survey of the Thai Economic

Outlook 2020. A total of 49 per cent of the respondents expected the economic development of Thailand in 2020 to stagnate. However, 16.3 per cent of the respondents believed that their company revenue in Thailand would grow by at least 10 per cent.

In terms of investment, Mr. Lorenzini argued that factors such as the global economic downturn, the Covid-19 outbreak, the strong Thai baht and trade wars would have a serious impact on businesses. As investments are declining, production output as well as supply and demand are diminishing. Companies do not feel encouraged to further invest into their production facilities, resulting in a downturn in the industrial sector. However, he noted that Siemens (Thailand) Ltd. was planning on further employee expansion. Mr. Lettner stated that Mercedes-Benz Manufacturing (Thailand) Limited would continue expanding and would follow a long-term investment plan. Mr. Donau agreed with Mr. Lettner, but added that he expected the future to be just “moderately positive” because of the strong impact of Covid-19 on supply chains and the resulting capacity limitations.

Concerning the challenges, the top three answers given in the survey were the impact of the Covid-19 outbreak, the global economic downturn and the shortage of skilled labour. Asked for a comment on these answers, Ms. Hansl stressed that the shortage of skilled labour presented a high risk for sustainable economic development, as this could drive companies and investors to other countries. Mr. Ayrle concluded that this structural challenge needed to be tackled in close co-operation with the government. Regarding the impact of a European UnionThai free trade agreement (FTA), more than half of the survey respondents believed it would be neutral. Mr. Molnar added his optimistic view that the FTA would be of great importance in boosting the economy.

Next, the panelists discussed the sustainability. They said that Thailand had accomplished excellent work regarding sustainability during its ASEAN chairmanship in 2019 and had gained global recognition. Yet, they noted, there was still room for improvement. Concerning the logistics industry, Mr. Donau emphasised the need for technological advances and innovation in order to reduce emissions from shipping activities, which contribute as much as 4 per cent to global CO 2 emissions.

As Siemens Ltd. was currently following the sustainable development goals introduced

by the United Nations, Mr. Lorenzini emphasised the importance of creating a sustainable environment for employees in their workplace. For the airline industry, Mr. Molnar said the main sustainability strategy was based on advancing technology for the development of more eco-friendly aircraft generations. Lufthansa has cut some of its short-distance regional flights, and plans to reduce the use of plastic on their flights by 50 per cent in the next few years.

Regarding competitiveness, the panelists agreed that different infrastructure improvements were crucial to strengthening Thailand’s competitiveness and to enhancing the ease of doing business, particularly in the fields of education, general infrastructure such as airports, and digital infrastructure related to bureaucracy. Mr. Lorenzini noted that the implementation of such changes and projects would take time, but that he trusted the Government of Thailand would follow an effective strategy on this matter.

The panelists concluded by agreeing that Thailand was striving towards long-term sustainable development and growth, despite rising challenges. They also noted the immense importance of partnership with the Government as well as ensuring a close relationship with Thai partners in order to overcome the limitations of the economy and the market.

Written by Serena Jarzombek, GTCC Corporate Services Trainee