Thailand faces economic headwinds in 2014 as its workforce becomes less competitive due to low productivity growth and wage inflation. While government measures aim to shift manufacturing towards higher value goods, this transition will be gradual. Populist policies like the rice pledging scheme have cost billions and hurt competitiveness. Business confidence in Thailand fell sharply in Q3 2013, with over half of businesses citing lack of demand and skilled labor as key constraints. The economy is projected to grow 4.8% in 2014, though challenges may result in slower growth. Infrastructure spending is expected to boost prospects in the medium term if delays can be avoided.

1. Focus on: Thailand
Grant Thornton International Business Report 2013

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Drawing on official data sources, such as the Economist
Intelligence Unit (EIU) and the International Monetary Fund
(IMF), and the Grant Thornton International Business Report
(IBR), this short report considers the outlook for the
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Focus on: Thailand 2
g

3. Focus on: Thailand
Economy
The Thai economy is entering a transition phase in its macro-economy.
This change has been felt markedly in 2013. Fuelled by an increase in the
minimum wage, very low unemployment, a change in World consumption
towards higher-technology goods and still-low productivity, growth of just
1% in exports is projected for 2013.
The government have announced
years. From 2008 to now, it rose at
a series of measures that should
a pace of 12.8% per year, and its size
help combat some of these effects:
relative to GDP has gone from 56%
• a change to the corporate tax
to 79%.
rate to 20%
However, the Bank of Thailand
• some important changes to
has indicated this is a result of
manufacturing privileges
stimulus policies and that figure
remains a key
announced by the well regarded
should decline as such policies are
in major markets
trade partner
export-focussed Board of
wound back. Notwithstanding these
Investment (BOI). These include
policies, the outstanding public debt
a move away from labour-driven
continues to remain relatively low at
Combined global
manufacturing towards more
5.30 trillion baht, or 44.63% of GDP,
revenues of higher-value goods in production
as of 31st August, 2013.
• massive infrastructure spending
This protracted consumer
plans of around $64billion, to
slowdown has meant that the Bank
in financial services
be invested before 2020. Whilst
of Thailand has adjusted their forecast
2012
it is expected that these will move
for GDP growth downwards three
ahead, it is likely that the start date
times during the last 10 months from
global accountancy
will be delayed meaning there will
over 5% to 3.7% (actual growth was
organisations
be little effect on the growth
6.5% in 2012).
as recognised
numbers in Street
by Wall 2014.
These welcome changes will assist to drive growth however will take time for
GDP
their full effect to impact the economy. As a result we believe Thailand will
1.2 billion
finish 2013 on a more subdued economic note than it started.
The economies of Thailand’s major
trading partners are performing
relatively strongly, and tourism has
rebounded well in 2013, up around a
projected 23%, with Time magazine
reporting that Bangkok was the most
visited city in the world by the 2013
Global Destination Cities Index.
These externally positive facts
reinforce that Thailand’s economic
performance is due to domestic issues.
The potent mixture of this
slowdown, mixed with expensive
and out-of-control populist stimulus
measures has resulted in consumer
disquiet. Domestic consumption has
slowed over a longer-than-expected
period as consumers grow concerned
about their household debt. This has
been steadily increasing for some
Ranked in
the top 6
$300m
67 million
people
approx.
2013 Fcst
GDP (%)
2013 GDP
3.7
Exports (%)
growth cut to
3.7%
1
Headline inflation (%)
2.2
Core inflation (%)
1
Current account (US$ bn)
-6.8
53.4%
20.0%
China
Japan
US
UAE
Others
6.3%
5.3%
60%
400
“The important dynamic
business
elements that I’ll be considering
interviews
of our member firms’the consumer’s
will be certainly
disposable income and how that will pan
out into 2014. I’m keeping a very close
operate in financial services
eye on the tourism sector. The more tourist
Above
that come to Thailand, the better it the for
is
39%
businesses. We are also looking average
BRIC at the
government to start their India
Talent major
shortage
infrastructure programs
hampers
growth million
that we believe will certainly jobs
help push the economy.”
top clients
needs to create
Export destinations (2012)
Import originations (2012)
2014 GDP
11.7%
2014 GDP
growth
Mr. Rituraj Mohan
Managing director
Boots Retail (Thailand) Ltd
2014
31% GDP
growth
31%of Thai
cut to
of
4.8% Thai cut to
growth 10.2%
cut to
China
Japan
US
businesses
9.9%
expect
Hong Kong revenue
businesses to rise
revenue
5.7% expectOthers
Rice-pledging to rise
31%
Rice-pledging
120+
4.8% +
120
continues
Ranked
and
Thai Audit, Tax and
scheme Advisory
professional
business
and Advisorywork together
Thai leaders continues
are
Thai
4.8%
62.4%
scheme
continues
scheme
in
in
Over
100
Source: Bank of Thailand (2013)
14.9%
One of the
‘large six’
$366bn
Revised in October, 2013
Australia
of Thai
businesses
expect revenue
countries where our
to rise
Audit, Tax
countries where our
Rice-pledging
and
Focus on: Thailand 3
Mo

4. Focus on: Thailand
Economic outlook
Thailand faces strong headwinds in 2014. Thailand’s labour productivity is
not increasing. With unemployment of 0.8% and continued wage inflation,
Thailand’s workforce is rapidly becoming less competitive. Whilst the change
in the BOI privileges means that the manufacturing orientation will change,
it will not happen quickly.
Unfortunately, Thailand’s servicerelated industry will struggle to take
up the slack. Competition remains
nascent in a number of industries for
several reasons, for example the
restrictive Foreign Business Act (FBA)
and the continued monopoly of State
Owned Enterprises. This lack of
competition simply condones current
inefficiencies which affects the
economy at large.
This emphasis on continuing old
inefficiencies can be witnessed in full
in Thailand’s rice-pledging scheme.
This has resulted in losses to the
State of approximately $10bn since
its inception 2 years ago, the loss of
Thailand’s world number 1 position in
rice exports, and the continuance and
even the extension of unproductive
farming methods. This has created
an “untameable beast” forcing the
government to indicate it will continue
with the policy in 2014 despite strong
opposition from leading industrialists,
the IMF, and academics.
Thailand’s education system requires
significant reform as it has not changed
in-line with more modern teaching
methods. This means the resultant
product of the education system is
not well suited to the demands of
the modern workforce requiring
productivity and multi-tasking. The
Tablet Project for all school children
certainly is an interesting experiment
to attempt to modernise the system
however it suffers from a lack of
direction, content and teacher-training.
Notwithstanding the above, we
remain cautiously optimistic in the
medium to long term as:
• the worldwide economy continues
to recover which should bode well
for Thailand’s manufacturing
sector albeit anaemically
• Thailand’s tourism sector continues
to be buoyant provided political
stability is maintained
• there should be increasing trade
liberalisation brought about by
new major Free Trade Agreements
like the AEC and the Thailand-EU
agreement, and later by the
Trans-Pacific Partnership
Agreement (TPP)
• the well-conceived Infrastructure
mega-projects and focus on
inter-regional connectivity is
extremely positive for Thailand.
Delays to the spending means we
are unlikely to see much positive
effect in 2014
• the Bank of Thailand noted in
its October report that the Thai
economy “began to stabilize and
show signs of improvement in
some sectors”.
Key external parameters are
noted to be quantitative easing (QE)
tapering, fiscal impasses in the US and
any reductions in the “Abenomics”inspired QE in Japan.
With these factors in mind, the
Bank of Thailand reduced its GDP
growth forecast for 2014 in October
to 4.8%. It also reduced its export
growth and current account forecasts
too. It is our view that there remain
significant challenges in the year
ahead, leading to a slower rate of
growth than this, however Thailand
should return to more robust growth
from 2015 thru 2017.
2014 GDP
growth
cut to
4.8%
Revised in October, 2013
GDP (%)
Exports (%)
in
p6
kets
7
Headline inflation (%)
2.4
Core inflation (%)
1.2
Australia
Current account (US$ bn)
remains a key
trade partner
Source: Bank of Thailand (2013)
obal
s of
Australia
remains a key
-7
of
bu
exp
Rice-pledging
2014 Fcst
4.8
3
2014 GDP
growth
cut to
4.8%
scheme
continues
31%
of Thai
businesses
expect revenue
to rise
Rice-pledging
lea
find
a
1
0
cou
scheme
continues
bu
une
Au
Thai
business 4
Focus on: Thailand
leaders are
finding growth
a struggle
an
profe

5. 67m
people
Focus on: Thailand
and growing
Business growth prospects
Thai business confidence fell to its lowest level since the 2011 floods in Q3-2013,
dropping to net -28% – meaning more business leaders are pessimistic than are
optimistic for the economy over the next 12 months – down from 22% the
previous quarter.
By contrast, the ASEAN average ticked up to 39% in
Q3 from 26% in Q2, driven by sharp increases in the
Philippines and Vietnam. Importantly for the wider
growth of the region, Chinese business optimism
rebounded from a record low of 4% in Q2, to 31% in Q3.
This negativity is feeding through to business leader
confidence in the growth of their own operations. While
net 31% of Thai businesses expect revenues to rise over
the next 12 months, -10% expect their profits to rise
(meaning a majority expect a decrease in profits), down
from 28% in Q2. Export prospects remain depressed with
just net 2% of business leaders expecting an increase, the
same as Q2, and down from an average of 17% in 2012.
The proportion of businesses planning to increase
investment in plant and machinery has also dropped,
declining from 18% in Q2 to just 4% in Q3.
67m people
and growing
“The government should
be transparent in their mega-projects
and have a clear plan in each project.
They should review and evaluate their
populist policy’s and whether they really
drive real GDP or not, and fine-tune them.
Most important is the labour issue. The
government should develop skilled labour
and resolve the labour shortage issue.
The 300-baht [minimum wage] policy
has been announced and we know
that national productivity has not
increased at all”
Mr. Thana Thiramanus
Managing director
Property Care Services (Thailand) Ltd
Net percentage of Thai businesses expecting an increase
53
Net percentage of businesses optimistic for the
economic outlook
2012 (average)
40%
Q2-2013
Q3-2013
44
30%
20%
10%
31
28
0%
67m
24
people
28
-10%
-20%
and growing18
17
Q4
Q1
2011 2012
Q2
2012
Q3
Q4
2012 2012
Q1
2013
Q2
2013
Q3
2013
-30%
-40%
2
Revenue
Profits
Exports
2
4
Investment
-50%
-60%
Thailand
ASEAN
-10
Source: Grant Thornton IBR 2013
Source: Grant Thornton IBR 2013
Focus on: Thailand 5

6. 2014 GDP
growth
Focus on: Thailand
Business growth constraints
cut to
4.8%
31%
of Thai
businesses
Business leaders in Thailand feel far more constrained in their ability to grow expect revenue
their operations compared with peers across the ASEAN region. Over the past
to rise
12 months, over half of Thai business leaders (53%) have cited a lack of demand
as a constraint on growth, rising to 60%Rice-pledging level since
in Q3 alone – the highest
Q4-2011. A lack of skilled workers (see next page) is also cited by over half
of businesses (52%).
scheme
continues
67m
Bureaucracy also remains a major concern. More than
people
two in five businesses cited regulations and red tape in
and growing
both 2012 and 2013, around double the level reported
before the financial crisis (20% in 2007). Infrastructure
concerns are also more pressing for Thai businesses
compared with ASEAN peers: more than a third cite
poor quality transport (37%) and ICT (34%)
infrastructure.
67m people
and growing
However, the most pressing overall concern in
Q3-2013 was economic uncertainty, perhaps reflecting
both political and economic problems both at 67m
home
67m
and abroad. This was cited as a constraint onpeople
growth
people
and growing and growing
by 80% of business leaders, above the Q2 result and
the ASEAN average (both 60%).
Thai
business
leaders are
finding growth
a struggle
“This is really the
year to focus on preparing
for the AEC. There’s no doubt
that we [Thailand] have to invest
in our infrastructure in order 67m
to
people
prepare for both the opportunities
unemployment
and
and challenges that come growing
rate
with that.”
0.8%
erviews
$
67m people
and growing
67m people
Mr. Thomas Nyborg
Managing director
Pandora Production Co. Ltd
67m people
and growing
Net percentage of businesses citing factor as a constraint
on growth (next 12 months)
1
and growing
67m
people
and growing
53
38
52
42
42
37
67m people
and growing
Shortage of orders
37
Regulations & red tape
Lack of skilled workers
29
34
31
33
2 billion inhabitants and growing
400
siness
1
Transport infrastructure
Source: Grant Thornton IBR 2013
ICT infrastructure
26
Shortage of finance
Thailand
ASEAN
32nd
largest
Focus on: Thailand 6
economy

7. h
o
%
g
e
s
67m people
and growing
Focus on: Thailand
Talent shortages
Thailand is going through a serious talent drought. The World Bank recently
reported that a lack of skilled labour has become the biggest impediment to
doing business in Thailand, while the Ministry of Labour said that demand for
workers outstripped supply for the first time in 2013. The government estimates
that 300,000 people are unemployed, which represents just 0.8% of the labour
force. As a result so these skills shortages, average wages rose by around 50%
in the decade to 2010.
31%
Percentage of businesses citing a lack of skilled workers
More than 50% of businesses in Thailand cite a lack of
as a constraint on growth (next 12 months)
skilled workers as a constraint on their expansion plans,
ten percentage points higher than the ASEAN average
Thailand
80%
(42%) where unemployment rates are higher. This is
ASEAN
however, far from a new phenomenon: in 2008, 68%
70%
of Thai businesses claimed that a lack of the right
expect revenue
60%
people was stopping them from growing.
The outlook for hiring workers has declined steadily
50%
over the past four quarters, falling from net 48% in
Q4-2012 to 0% in Q3-2013. Traditionally, Thailand
40%
has plugged skills gaps with migrant workers from
neighbours such as Myanmar, Cambodia and Laos,
30%
but with businesses issuing a collective warning on
profits, they are unlikely to be needed in the short-term.
20%
Longer term however, a review migration policies and
incentives, and improvements to the education system
will be needed to ensure that the Thailand continues
2008
2009
professional work together2010 2011 2012 2013
to offer the right people to support its development.
of Thai
businesses
to rise
120+
countries where our
Audit, Tax and
Thai
business
and Advisory
leaders are
finding growth
a struggle
0.8%
unemployment
rate
$4.2bn
Percentage of businesses expecting an increase
in employment (next 12 months)
50%
revenues
Thailand
ASEAN
40%
2012
30%
“The government
should solve the labour
shortage for the export industry.
Maybe they should look
for joint ventures with
neighbouring countries.”
67m
people
and growing
20%
67m people
More than
Mr. Anchatach Taechamatavorn
Chairman, Manufacturers Public Co. Ltd
67m
people
and growing
and growing
15,000
10%
Q4
2011
Q1
Q2
Q3
Q4
Q1
Q2
Q3
2012 2012 2012 2012 2013 2013 2013
Auditors
Source: Grant Thornton IBR 2013
worldwide
Focus on: Thailand 7

8. IBR 2013 methodology
The Grant Thornton International Business Report (IBR) is the leading mid-market business survey in the
world, interviewing approximately 3,300 senior executives every quarter in listed and privately-held businesses
all over the world. Launched in 1992 in nine European countries, the report now surveys more than 12,500
businesses leaders in 45 economies on an annual basis, providing insights on the economic and commercial
issues affecting companies globally.
The data in this report are drawn from interviews with chief executive officers, managing directors,
chairmen and other senior decision-makers from all industry sectors in mid-market businesses, defined
in Thailand as those with 20-599 employees.
Q3 data is drawn from 3,300 interviews globally (50 in Thailand) conducted in September 2013. 2013
average data is drawn from over 12,500 interviews (200 in Thailand) conducted between December 2012
and September 2013.
To find out more about IBR, please visit: www.internationalbusinessreport.com.
Dominic King
Grant Thornton International Ltd
Global research manager
T +44 (0)207 391 9537
E dominic.king@gti.gt.com
Lakpilai Worasaphya
Grant Thornton Thailand
Senior manager – Marketing & communications
T +66 2 205 8142
E lakpilai.worasaphya@th.gt.com
© 2013 Grant Thornton International Ltd.
‘Grant Thornton’ refers to the brand under which the Grant Thornton
member firms provide assurance, tax and advisory services to their
clients and/or refers to one or more member firms, as the context requires.
Grant Thornton International Ltd (GTIL) and the member firms are not a
worldwide partnership. GTIL and each member firm is a separate legal
entity. Services are delivered by the member firms. GTIL does not provide
services to clients. GTIL and its member firms are not agents of, and do
not obligate, one another and are not liable for one another’s acts or omissions.
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