Thailand - Steady Growth Continues
Thailand is generally regarded as a good growth economy, and it has over the last decade delivered an annual rate of 3% for GDP per capita. This means it is a good growth market, but it is one of the slowest of the countries in Asean. It is expected to continue at 3% per annum through to 2018. Why is that?
The reasons relate to basic demographics.
Total population is near it peak and starts to decline after 2025
The only age group growing over the next decade is 65 years plus, few of whom are still in the labour force
Labour force peaks in 2024 – but is effectively at the peak already
Education standard is improving but not sufficiently fast to give it an advantage over other countries in the region.
Productivity per worker is good but wage rates are higher than most competitor countries.
Assuming continued steady improvement in education and spend on Fixed Capital Investment means productivity per worker is projected to increase at a rate that results in GDP growth of 3% pa.
This results in the number of households with an income over US$10,000 pa increasing from 10.5 million to 14.7 million in the next decade.
Thailand has been generally regarded as an emerging economy with good growth prospects, and this been supported by its steady if not spectacular total real GDP growth over the last decade. It has averaged 3% per annum despite two years of negative growth,
The characteristics of Thailand’s population, labour force, education, wages and investment are such that there is cause for concluding that the growth rate will stay at around 3% per annum to 2028. That places it as 20th out of the 30 countries we cover in Developing Asia, South Asia, and Eastern Europe.
The primary issue constraining Thailand from a faster growth rate is the changing age profile of its population. But there is also concern that it has not got its labour force skill level and infra structure to a point where productivity per worker can grow faster than 3% per annum nor will it do so in the next decade.
The Projected Change in Total Population and Age Profile
As shown in Figure 1 at 69.42 million persons the total population of Thailand is now (2019) close to peak. It is expected to peak in 2025, but the additional growth between 2019 and 2025 is relatively minor (689,000 persons). After 2025 it is projected to decline quite slowly, but steadily, such that the long-term forecast (2043) indicates a total population of 66.56 million.
Figure 1: Trend in Total Population of Thailand to 2043
The Changing Age Profile of the Population
However, Thailand’s growth impediment is not the low growth in the total number of people but rather the age profile of the population. Figure 2 paints the picture very clearly. As is evident from this chart with the short-term exception of the 40-64-year age group to 2021, the only consumer group showing sustained growth for the next decade is 65 years and above. Even the 40 to 64 year age group only adds 395,000 between 2018 and 2021.
Figure 2: The Changing Age Profile of Thailand’s Population
All the younger (under 40 years) age segments are in decline and have been since before 2005 and the 40 to 64 age group is in quite rapid decline after 2021. Also do note that, except for the youngest age group, this is inevitable through to 2033 as these people are already alive today.
This means that for the next decade no consumer product or service has a growing number of customers under the age of 65. Increased revenue and profits will have to come from either greater revenue per customer or successful penetration of the older age group (who, in Thailand, are generally not that affluent and are more conservative as consumers).
Factors Driving the Decline in Total Births
The age profile of the population also explains why the population declines. Figure 3 shows the trend in number of women of childbearing age, birth rate per thousand of these women and total births. The reader might note that in our forecast, we do not expect the birth rate to move significantly in future. Therefore, the decline in total births is not the result of a decline in the propensity to have a child but rather a decline in the number of couples wanting to have a child.
This means that the decline in total births is inevitable as the number of such persons is already alive today and the continued decline in absolute number is locked in. The birth rate could, of course, increase but that would be contextually unusual. While GDP growth may be slower than other countries in the region it is nonetheless positive and that together with improving education standards almost inevitably results in a lower propensity to have more than one child.
Figure 3: Trend in Total Births, Women of Childbearing Age and Birth Rate.
Projected Trend in Labour Force Size
This leads to the final demographic problem for Thailand – the declining number of persons of ‘working age’. In the case of Thailand working age is defined as 15 to 64 years of age as the health and education standards are not sufficiently good to allow a significant proportion of older citizens to stay in work. (In many Western European countries, North America, Japan and South Korea the fastest growing worker segment is persons 64 to 75 years of age).
Again, the decline in the size of the working age population is inevitable for the next 15 years if not longer. It can only change after 2033 if birth rates increase dramatically (which is unlikely) and in the short term if immigration is encouraged.
Now a declining working age population can be offset by an increasing propensity to be employed. But again, Thailand does not have the luxury of that as the propensity to be employed of its population is already high by international standards. In 2017 it is 80% for males and 64% for females. It might be possible that the female participation rate can increase but it is unlikely to change significantly from this level – perhaps to 67% by 2028.
Given then that there is little upward flexibility in propensity to be employed this means that the workforce of Thailand follows the very marginal declining trend which exists for persons of working age (15 to 64 years). The total labour force is reported as 38.8 million in 2018 and it is projected to be 38.9 in 2028 (its peak) and then decline to 34.7 million by 2043 assuming birth rates adhere to the trend described earlier.
The Problem - Education
Which leads to the core issue – under this demographic scenario the only way Thailand can increase its GDP (in absolute terms and growth rates) is to lift the productivity of its workforce. That is where Thailand’s problem lies.
Globally there is an established relationship between the education standard of the workforce, Accumulated Fixed Capital Investment Per Worker* and productivity of the worker. Education typically precedes Fixed Capital Investment. If the overall education standard of the workforce is not good then investment is lower and the worker has less resources to hand to lift their productivity,
[* Accumulated Fixed Capital Investment per Worker – this is the Fixed capital investment of the last 10 years depreciated in full over 10 years – so the earliest year is at 10% of the FCI spent in that year – divided by the number of workers. It is a measure of the resources available to the individual worker and has a close correlation with productivity per worker over time across the 108 countries we cover.]
Figure 4: Education Profile of Thailand’s Workforce Relative to Selected Other Countries in Asia.
Figure 4 shows the education profile of Thailand’s adult population relative to other competitor countries. It is not competitive and therefore gives Thailand no advantage relative to these countries to attract investment – especially in the context of no growth in the size of the workforce and eventual availability of labour - with possible implications for wage rates.
In part Thailand’s problem is its older Population profile. It has a lot of workers in its workforce who are over 40 years of age and did not have the same educational opportunities as the younger population and these people will remain in ‘the system’ for another two decades. So, the education/skill profile would need to lift faster in the younger age prolife and the evidence is that the Thailand education system is not achieving that. It is improving, but not fast enough.
Furthermore, as shown in Figure 5 the average wage per worker per annum is not competitive with Indonesia or Vietnam (let alone many Eastern European countries) which also makes it harder to attract investment. This of course, is hard to change. Devaluation of the currency (a drastic measure) is perhaps the only way it can be done in the short term. The only other alternative is to lift productivity of the worker by additional fixed capital investment.
Figure 5: Annual Average Wage of Selected Countries in Asia and Mexico - 2017
Accumulated Fixed Capital Investment per worker
Given that Thailand can do little in the short term to the size of its employed labour force, education profile of it the only tool it has left is to increase the investment behind each worker as that typically enhances productivity and ultimately individual affluence as well as total GDP. At present Thailand invests 24% of its GDP in Fixed Capital Investment which is close to the global average and means that the worker is relatively well equipped. Figure 6 compares it with the other Asean Countries and China.
Figure 6: Relative Accumulated Fixed Capital Investment per Worker US$ 2018
As shown, it is behind China and Malaysia and its advantage over Indonesia is relatively small. (It might be noted that China has probably over invested relative to the education profile of its workers and future slow growth in number of workers – another story).
Lifting this further would help, but our model indicates that it would need to get to 28% of total GDP to lift the overall GDP growth rate by 1% by 2028 (i.e. to 4% average pa). However, with relatively higher wages per worker, fixed supply of labour and hence upward pressures on wages there is doubt that Thailand could attract the investment required. Better returns could be obtained elsewhere (Vietnam ), Mexico or Eastern Europe.
Implications for Household Incomes
Given then that Thailand is probably going to grow at 3% per annum through to 2018 what does this mean for the distribution of households by income. This is shown in Figure 7. While the two higher income segments grow as a proportion of all households – from 38% in 2018 to 43% in 2028 - the overall change is not spectacular. Rather the interesting point is the growth in number of households which is a function of the ageing population – more empty nester and retired person households and smaller average household size.
Figure 7: Historic and Projected Distribution of Households by Income.
This Insight was prepared using our on-line database.
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The data for all 109 countries runs from 2005 to 2043.