Emerging Markets: Analyzing Thailand's GDP

Thailand sets a classic example of rapid economic growth in less than a generation. A low-income country in the 1980s, Thailand was upgraded in status to an "upper-middle income economy" by the World Bank in 2011. The transition of this South Asian economy not only happened in a short span of time, but against a backdrop of domestic political turmoil. The Thai economy, tagged as a tiger economy, grew at a fast pace of 8-9% during the latter part of the 1980s and the early 1990s before it got caught up in the Asian Financial Crisis of 1997-98.

The economy recovered from the crisis in the following years with moderate growth, and spurts of robust growth pushed the economy forward before the global financial crisis of 2008-2009. Since then, the economy of Thailand has again slowed due to economic, natural and political events. In 2011, one of the worst floods to hit the country in five decades resulted in an economic loss of approximately $45.7 billion. Political uncertainty and tension arose in 2010 and yet again in 2013-14. To make things worse, the nation is facing a drought situation in 2015.

Thailand’s Gross Domestic Product (GDP) is $373.80 billion in size (according to 2014 World Bank data) and has broadly been supported by the primary sector (agriculture and harvesting of natural resources), the secondary sector (manufacturing, construction), and tertiary industry, or the service sector. Per the 2014 data, the primary sector accounted for about 12% of the GDP while industry and tertiary industry accounted for 42% and 46% respectively. (For more, see: Why You Should Invest In This Vibrant Asian Nation.)

Agricultural development has played a major role in the transformation of Thailand’s economy. The primary sector in the country has witnessed two phases. The first was characterized by growth in agriculture driven by the utilization of unused labor and land. This phase lasted from the early 1960s to the early 1980s, during which time the economy was heavily dependent on agriculture as the main economic driver. Agriculture employed around 70% of Thailand's active working population. During the second phase, while labor shifted to urban areas and no new land was utilized, there was nevertheless an increase in agricultural productivity. The agricultural sector continued its growth, albeit at a slower rate, led by productivity through mechanization and availability of formal credit. 

With the growth in the other sectors of the economy, the dependence of Thailand’s economic base on agriculture has gradually declined over the years, but this sector still accounts for about 12% of GDP and employs 32% of the population. This figure is high when compared to the United States, the United Kingdom and Japan, where only around 1-2% of GDP comes from the primary sector, while it’s comparable to China and Malaysia where agricultural contribution to GDP touches 10%. (For more, see: China's GDP Examined: A Service-Sector Surge.) Thailand’s main agricultural output is rice, rubber, corn, sugarcane, coconuts, palm oil, pineapple, cassava (manioc, tapioca) and fish products. 

The industrial sector, comprised of manufacturing as the major segment along with mining, construction, electricity, water and gas, contributes more than 40% to Thailand’s GDP, a figure which has gradually increased as that of agriculture has declined.  The sector employs 17% of the country’s labor force. The growth in Thailand’s manufacturing occurred over two periods with two different strategies: the first, from 1960-1985, was governed by policies related to import substitution; the second era, from 1986 to the present, focuses on export promotion. In the initial years, manufacturing in Thailand was highly intertwined with agriculture, especially as the country’s manufacturing started with the food-processing industry. Slowly, with changes in the industrial policies, industries like petrochemicals, electronics, automobile and automobile parts, computer equipment, iron and steel, minerals and integrated circuits got a boost and investment incentives. 

The service sector accounts for more than 45% of Thailand’s GDP while providing employment to 51% of the labor force. The service sector's share in Thailand’s economy has roughly remained the same over half a century and this justifies the major structural shift between agriculture and industry. Within services, transportation, wholesale and retail trade (which includes repair of motor vehicles and motorcycles as well as personal and household goods), and tourism and travel-related activities have been the prominent contributors to the GDP and employment generators. 

When we look at the GDP composition from a different viewpoint, i.e. domestic or export demand driven, Thailand falls in the category of an export-oriented economy. The graph below is a pictorial representation of the contribution of exports (goods and services) to the GDP, with the shift in policy from import substitution to export promotion during the 1980s. Over these years, the contribution of exports to the GDP has increased substantially, which classifies Thailand as an export-led economy. This makes it vulnerable to the economic situation of its major trading partners and to currency fluctuations. Thailand’s major export destinations are China, Japan, the U.S., Indonesia, Malaysia, Australia, Hong Kong, Singapore and India. Thailand’s main exports are manufactured goods, with electronics, vehicles, machinery and equipment and food items being the major components. (For more, see: Retire In Thailand With $200,000 Of Savings?)

The economy of Thailand is an interesting blend of a strong agricultural sector with a developed manufacturing sector and stable service sector. Although the agricultural sector has been overtaken by industry and tertiary industry, in terms of contribution to GDP, the primary sector continues to employ to a large labor force and add to exports. While manufacturing and the service sector play their part, the growth of the economy is highly dependent on its export-sector, which contributes 75% to the GDP; this exposes the Thai economy to global macroeconomic conditions and currency volatility.