Introduction
In Southeast Asia, two nations, Thailand and the Philippines, have emerged as economic players in recent times each with its own distinctive set of strengths and weaknesses. This in-depth discussion embarks on a profound analysis, peeling back the layers of their economic narratives to reveal their unique progress, challenges, and roles as dynamic economic players within the ASEAN region. Let us delve into it.
Thailand: Navigating Economic Rebirth
Thailand, with a population exceeding 69 million, has carved its place as a dynamic economic player, boasting a robust GDP of 543 billion United States Dollars and a per capita income of 7,800 United States Dollars. However, its economic journey has been punctuated by significant challenges, particularly the profound impact of the COVID-19 pandemic. In 2020, Thailand faced a sharp economic contraction of 6.1 percent, primarily due to its heavy reliance on exports and tourism. The pandemic dealt a severe blow to these sectors. Yet, Thailand’s resilience shone through in the post-pandemic era, with a rebound to 1.5 percent growth in 2021, strengthening further to 2.6 percent in 2022.
Looking forward, the International Monetary Fund (IMF) projects a continued upward trajectory for Thailand, with expected growth rates of 3.6 percent in 2023 and 3.8 percent in 2024. These figures underscore the nation’s capacity for economic rebirth and adaptability in the face of adversity.
Thailand’s economic prowess relies significantly on its exports market, with goods exports constituting a substantial portion of its GDP, standing at 61 percent in 2022. Key exports include automobiles and parts, computers, jewelry, rubber products, and plastic pellets. The tourism sector, another vital contributor, is on the path to recovery, with 11.2 million foreign tourist arrivals in 2022, a remarkable surge from the 428,000 in 2021. Although, it has to undergo a long journey to reach the pre-pandemic levels, expectations are high, with projections of 28 million foreign arrivals in 2023 and 35 million in 2024, indicating a promising resurgence.
In managing its economic journey, Thailand has navigated the challenge of a rising public debt-to-GDP ratio, which reached 61 percent in February 2023, up from 41 percent before the pandemic. The government took on significant borrowing (1.5 trillion baht or £35 billion) to fund COVID-19 stimulus measures. However, manageable risks to fiscal sustainability persist, given that most of the debt is denominated in local currency, with ample domestic liquidity available to meet the government’s refinancing needs. External debt accounts for less than 2 percent of the total public debt.
A notable concern in Thailand’s economic landscape is its high level of household debt, among the highest in Asia. Before the pandemic, household debt was at 80 percent of GDP, and it saw a sharp increase, reaching 86.9 percent of GDP in the fourth quarter of 2022. It’s a challenge that necessitates attention in the nation’s economic journey.
Thailand’s commitment to international trade is evident through its 14 regional and bilateral free trade agreements (FTAs) with 18 countries. As a member of ASEAN, Thailand is part of the Regional Comprehensive Economic Partnership (RCEP), the world’s largest trade deal as of January 2022. The RCEP is a collaborative effort among the 10 ASEAN members, along with China, Japan, South Korea, Australia, and New Zealand. This agreement not only eliminates tariffs but also harmonizes rules of origin, which is critical for the duty-free treatment of products.
Although Thailand has expressed a keen interest in becoming a part of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the advancement of this endeavor has encountered setbacks primarily attributable to reservations surrounding the agricultural and pharmaceutical sectors.
Public investment and government spending play pivotal roles in Thailand’s economic recovery. The public sector continues to invest in various construction projects, including upgrading the rail network, intercity motorways, and the Bangkok mass transit system. Additionally, the 20-year Transport System Development Strategy (2018-2037) outlines plans to expand airport capacity, improve infrastructure in the Eastern Economic Corridor (EEC) economic zone, and focus on key industries like automotive, smart electronics, medical tourism, and more under the Thailand new four point zero industrial strategy.
GDP Growth is an area of optimism, with the IMF estimating a per capita GDP of around US$7,500 in 2022 and anticipating an increase to about US$10,500 by 2027.
In assessing country risk, Thailand falls within the low to moderate range, similar to other nations like the Philippines, India, and Indonesia. The OECD assigns Thailand a country credit rating of 3, indicating a relatively low to moderate likelihood of the country being unable or unwilling to meet its external debt obligations.
Political risk is another factor to consider, as the discord within the ruling coalition and tensions between the government and opposition parties, have the potential to result in protests and civil unrest. Thailand has a history of military coups, contributing to the risk of political violence.
The governance indicators in Thailand are robust, with a track record of transparent and predictable fiscal and monetary policies, maintaining economic and financial stability through political cycles.
The Philippines: Charting a Prosperous Course
The Philippines, spanning over 7,600 islands and home to a population exceeding 110 million, is charting a course toward economic stability. It boasts a robust GDP of 440 billion United States Dollars and a per capita income of 3,905 billion United States Dollars.
Despite the challenges presented by the COVID-19 pandemic, the Philippines demonstrated remarkable economic growth, with GDP surging from 5.7 percent in 2021 to a robust 7.6 percent in 2022. This achievement is a testament to the nation’s economic resilience.
Looking ahead to 2023, the Philippines anticipates continued economic strengths. In the context of our comparative analysis, it’s crucial to examine the factors that shape the Philippines’ economic journey. A robust export sector and strong household consumption have been instrumental in driving GDP growth, compensating for weakening investment growth in the country.
However, challenges loom in the form of weakening external demands amid tightening global credit conditions, which could impact Philippine exports.
Nonetheless, there is optimism in the form of increased public spending, particularly in infrastructure development. President Ferdinand Marcos Junior is committed to allocating five to six percent of the country’s annual gross domestic product (GDP) to the infrastructure initiative, ‘The Build, Better, More.’ These investments are expected to enhance the business climate, attract foreign investment, and boost productivity. According to IMF projections, growth is anticipated to average 6 percent per year between 2024 and 2027, underlining the nation’s promising economic journey.
Longer-term macroeconomic fundamentals are favorable, underpinned by a large and youthful population. The government’s commitment to enhancing the investment climate through increased infrastructure spending further bolsters the nation’s growth potential.
In exploring the economic pathways of the Philippines, it’s essential to consider the impact of the COVID-19 pandemic. The pandemic hindered government poverty reduction efforts and human capital development, causing the poverty rate to rise to 18.1% in 2021 from 16.7% in 2018. Nevertheless, as we examine the nation’s economic journey, the IMF projects a positive trajectory, with GDP per capita expected to rise above US$4,800 in 2027, from an estimated $3,500 in 2022.
Assessing country risk is a pivotal aspect of understanding the Philippines’ economic journey. The nation falls within the low to moderate range, with the OECD assigning a country credit rating of 3.
Political risk in the Philippines is evaluated as moderate. The government’s focus on security and anti-drug initiatives has implications for the operating environment. While the country ranks low on the World Bank’s political stability index, domestic politics has not significantly impacted economic growth or fiscal reform historically.
Governance indicators in the Philippines are broadly in line with the emerging Asia average.
Distinctive Pillars of Economic Strength
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Thailand:
Thailand’s economy flourishes through diverse sectors, including manufacturing, agriculture, and a burgeoning tourism industry. Bolstered by its strategic location and strong infrastructure, Thailand has become a hub for manufacturing, particularly in electronics, automobiles, and textiles.
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The Philippines:
In parallel, the Philippines shines in the service sector, capitalizing on Business Process Outsourcing, manufacturing, and tourism. A skilled and English-proficient workforce has propelled its role as a global destination for business process outsourcing services.
Navigating Economic Realities and Political Dynamics
Thailand’s Political Landscape
Both nations navigate complex economic landscapes underscored by distinctive political dimensions. Thailand’s constitutional monarchy provides a stable foundation for economic growth, shaping economic policies and development.
The Philippines’ Political Environment
The Philippines, a democratic nation, traverses political challenges to cultivate a business-friendly environment. It continues to improve its Ease of Doing Business ranking, showcasing its dedication to fostering a conducive ecosystem for investment.
Urban Quality and Aspirations
Urban quality takes center stage, with Thailand’s capital, Bangkok, and the Philippines’ Manila, both striving to secure spots among the world’s most livable cities.
Tracing Trade Routes and Investment Horizons
Tracing the economic pulse, Thailand’s exports totaled 282 billion USD in 2022, driven by electronics, automobiles, and agricultural products. Meanwhile, the Philippines showcased exports totaling 105 billion USD, with electronics and machinery leading the charge.
Foreign Direct Investment remains a linchpin of economic vitality, with Thailand attracting substantial inflows totaling 6.6 billion United States dollars in 2022. The Philippines, writing its narrative of growth, welcomed FDI inflows of 7.5 billion US dollars.
As custodians of financial stability, Thailand’s central bank reserves reached 273 billion US dollars, mirrored by the Philippines’ Bangko Sentral ng Pilipinas, safeguarding assets of 107 billion US dollars.
Forging Forward
In summation, Thailand and the Philippines embark on distinctive pathways toward economic prominence in Southeast Asia. As both these nations continue their economic odysseys, the world watches with anticipation, recognizing that the journey toward economic dominance transcends the present horizon. The stage is set, and Thailand and the Philippines, each with its unique narrative, stand poised to inscribe new chapters in the annals of regional economic influence.
