Policy stimulus supported a strong recovery last year after severe flooding devastated Thailand's economy in late 2011. While domestic demand rebounded in 2012, exports weakened on soft global demand and flood-related disruptions to manufacturing. Growth in gross domestic product (GDP) is seen moderating toward trend, with inflation forecast to remain modest. The country faces critical challenges in equity, public investment, and governance.

Economic performance

The economy rebounded last year from flooding that swamped industrial estates, farmland, and parts of the capital Bangkok in late 2011. GDP rose by 6.4% in 2012 compared with just 0.1% in the previous year.

Private consumption increased by 6.6% to contribute about half of total GDP growth. Consumption was stimulated by demand to replace household items after the floods and by several government policies. These included increases in minimum wages by up to 40% in seven provinces and in public service salaries, a tax rebate to first-time buyers of domestically made cars, which some 1.2 million car buyers took advantage of, tax breaks for first-time buyers of houses, and a government decision to buy unmilled rice from farmers at prices well above international levels.

Growth in employment and wages supported consumption, as average wages rose by 11.8% and employment by 1.2%. The unemployment rate fell to just 0.5% by year-end.

Fixed capital investment rose by 13.3%, propelled by the reconstruction of flood-damaged factories, houses, and other infrastructure and the replacement of capital equipment. Public construction was spurred by the building of mass rapid transit projects in Bangkok and mobile telecommunications networks.

However, external demand weakened last year due to sagging economic growth in major markets and disruption to export-oriented manufacturing caused by the floods. Net exports of goods and services acted as a drag on GDP growth.

Source: ADB estimates.

Economic prospects

After the rebound in 2012, economic growth is expected to moderate to about 5% this year and next, the pace seen in the 3 years leading up to the global financial crisis. Projections assume the government follows through with large public investments it plans in water management and transport infrastructure during the forecast period.

Private consumption will continue to benefit from a tight labor market and the minimum wage increases, which were extended throughout the country from January 2013. A study by the Thailand Development Research Institute found that last year’s 40% increase in minimum wages in seven provinces did not cause significant layoffs.

Source: ADB. 2013. Asian Development Outlook 2013. Manila.

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