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This is Thailand, the only middle-income country in which the armed forces regularly seize power. There have been a dozen coups since the end of the absolute monarchy in 1932, two of them in the past 20 years.
Since early 2020, there have been thousands of mass protests with notable waves. In 2020-21 and more recent smaller-scale demonstrations continuing into 2025. Despite this political volatility, visitors have flocked to Thailand in recent decades. Nearly 35 million of them arrived last year to relax on its beaches and dance in its discos.
Thailand's turbulent politics have not prevented it from transforming itself from an agricultural economy into a modern industrial state. From 1982 until its collapse during the 1997-98 Asian financial crisis, the economy grew at a near double-digit pace. However, since the 2014 coup, annual GDP growth has been far from modest. Southeast Asia's second-largest economy expanded just 2.5%, which is half the average of its neighbors in the ASEAN bloc. The Thai stock market, trading at its lowest level since March 2020, has dropped by nearly 23%, the worst performance among the world's major markets. This signals a serious decline in investor confidence and a weakness in the Thai economy. So, what's happening to Thailand's once-enduring economic miracle?
Historically, Thailand is the only Southeast Asian territory that did not experience direct colonial rule despite a few territorial conflicts. This was partly because it strategically acted as a buffer zone between the French and British colonies. This unique position allowed Thailand to serve as a hub for trade. Following the opening of the Suez Canal, Thailand further leveraged its location to become the primary exporter of rice in the region, a trend that continues to this day. However, the economic prosperity from these developments was often managed by technocrats, and the benefits were slow to reach the general public for decades.
Thailand's economy, as we know it today, truly began to take shape in the mid-1980s, influenced by the Plaza Accord, which depreciated the U.S. dollar. Although Thailand was not directly involved in this agreement, its currency, the Baht, was pegged to the U.S. dollar, which means its value was fixed or tied to the dollar. This made Japanese exports more expensive and less competitive, promoting Japanese manufacturers to seek cost-cutting measures. Japan began to eye Thailand's strategic trade advantage, located at the crossroads of the South China Sea and the Malacca Strait, a prime shipping channel. This coincided with Thailand's efforts to deregulate industries and open its doors to foreign investment, which particularly enticed Japanese firms to establish factories and operations there. This shift also encouraged Thailand to transition from an agrarian, self-sufficient economy to one focused on exporting competitively produced goods and importing necessities, which finally led to a range of long-awaited domestic benefits. This industrialization also benefited agriculture, moving from basic subsistence farming to more mechanized methods, allowing more people to take on higher-paying factory jobs. This export-driven growth model fueled the economy, leading to a near double-digit pace from 1982 until its collapse during the 1997-98 Asian financial crisis.
Since then, annual GDP growth has been much slower. However, foreign direct investment, or FDI, has kept flowing in thanks to the stability provided by the currency peg. This peg, which tied the Thai Baht to the U.S. dollar, reduced foreign exchange risks and made Thailand an attractive place for foreign companies to invest. The country's historical strength in rice exports also proved to be a godsend during challenging times. Rice is a staple food and what economists call an inelastic good. This means that even when prices fluctuate, global demand for it remains consistent, especially from nearby rice-consuming nations.
According to Reuters, Thailand's overall exports recently saw a downturn and the situation is dynamic. We've seen a sharp 36% fall in rice exports from their 2017 peak. This drop is attributed to a combination of factors: increased competition from major rice exporters like India and Vietnam, declining demand from key buyers such as Indonesia and the Philippines, and currency headwinds from a fluctuating Thai Baht. There are also the lingering effects of past U.S. trade tariffs on key export items, including rice and automobiles. In its heyday, the country built a core export powerhouse by combining Japanese automaking know-how with a competitive network of Thai car parts suppliers. It is still Southeast Asia's biggest carmaker, yet the production lines are not thrumming as they once did. The country's annual car output sank to 1.5 million units in 2024, 8% lower than in 2023 and 39% down from peak production a decade ago.
Thailand's low labor costs once persuaded carmakers, steel producers, and others that it was a good place to build factories. But competitiveness has been slipping. Thai workers' wages seem expensive now when compared with those in places like Vietnam. Suzuki and Subaru, two Japanese carmakers, are closing down factories in Thailand. EVs, built by Chinese firms in Thailand, have elbowed out Japanese competitors, which tend to rely more on Thai parts suppliers. But the bigger culprit is stifling household indebtedness, which has climbed ever higher since 2011, when the government launched a tax rebate for first-time car and home buyers. Thai households carry debt worth 92% of the country's GDP, a bit shy of the 99% ratio America reached in 2007.
It's not just the car market that's struggling. Silver linings are becoming harder to see in Thailand's economy as well. A major reason for this is the increasing burden of household debt, which is harming consumers. This diverts their income from spending to repaying the debt. As a result, private consumption has stalled and consumer confidence has plummeted, falling for six consecutive months and reaching its lowest level in over two years. Because many consumers are hesitant to make major purchases, it's leading to a sharp deceleration in private consumption expenditure.
This economic challenge is driving a profound social change facing the entire region: a declining and aging population. Thailand's fertility rate is lower than Europe's, placing it in the ultra-low fertility rate category. By 2024, the rate is set to be around 1.3 births per woman, similar to countries such as South Korea. At least they were lucky enough to become rich before old age. This demographic shift is especially concerning because many of the elderly lack retirement savings, with national surveys suggesting that a staggering eight out of ten rely on income from their children.
But why did Thailand's birthrate plummet so fast? The roots of this demographic crisis go back to the 1970s. The government launched a national population program with a clear objective to encourage families to have fewer children. The campaign was highly effective, famously using slogans like, "If you have more children, you will become poorer." Data shows it worked: from 1963 to 1983, Thailand saw approximately 1 million new births annually before the number steadily declined over four decades. Today, the declining birth rate is also influenced by broader factors like education and the rising cost of living. When women have more years of education, they often prefer to have fewer children as they enter the labor market and earn an income. The financial and time costs of having more children become a significant tradeoff.
One of the most dangerous problems of the Thai economy is a lack of inflation. Thailand's inflation has been crushed to -0.79%. Inflation in Thailand has been slowing for the past decade, not just in the current year, with core inflation consistently below the central bank's target. This is not a short-term issue, but rather a sign of deeper structural problems in Thailand's economy. They don't have inflation due to demand. There's no price pressure, which reflects the inability of businesses to pass on costs to consumers. In simple terms, no one dares to raise prices because consumers don't have enough money to absorb higher costs. Therefore, the ongoing low inflation, which is below the target range, affects not only economic numbers but also the confidence of consumers, businesses, and investors. It leads to a reduction in confidence. Businesses are struggling with a lack of pricing power and are unable to raise prices for goods or services. Landlords are unable to increase rent in an environment of consistently low inflation. In terms of investment, there may be a decline when product prices don't increase. Investors lack the motivation to invest for future profits, which in turn affects wages that may not rise in the absence of inflation. Labor income remains stagnant, reducing consumer purchasing power and halting the circulation of money in the economy. Ultimately, this results in a further decline in economic confidence as both consumers and businesses delay spending and investment decisions.
The ongoing low inflation presents a major risk of Thailand following in Japan's footsteps and falling into a deflationary trap. A deflationary trap is a dangerous cycle where falling prices lead to a delay in consumer spending, which in turn leads to less production, lower wages, and even lower prices. After the economic bubble burst in the 1990s, Japan fell into this trap, resulting in a prolonged period of economic stagnation that was difficult to recover from.
The reduction in inflation is not merely a temporary effect of lower vegetable and fruit prices. The flood of Chinese goods into Thailand is also a factor that continues to drive inflation down. Many Thai businesses are facing price competition from cheap Chinese goods, flooding the Thai and ASEAN markets, which is pressuring local companies to keep prices down even when their costs rise. These are structural issues that require direct government measures such as import taxes or controlling price dumping from China. Simply relying on the Monetary Policy Committee, or MPC, to address this through interest rate cuts will not solve the problem.
Beyond these domestic challenges, Thailand's long-term competitive position is in doubt. The country offers the worst of both worlds: high political risk in a low-reward economy. Thailand's export industries, which make up two-thirds of its GDP, are dominated by traditional firms selling into shrinking global markets. Thailand assembles the bulk of the world's hard disk drives, an industry that is being steadily replaced by newer, solid-state drive technology. Attempts to pivot to more innovative, high-tech product lines, such as the manufacturing of semiconductors, are only now beginning to ramp up. The country is struggling to keep pace with regional rivals like Vietnam and Malaysia, who have already made significant strides in attracting high-tech manufacturing. Without a swift and decisive pivot to the industries of the future, Thailand's economic struggles will only continue.