By: Asia Sentinel

Thailand’s economy is poised for modest growth in 2017 as solid domestic spending is expected to offset weaker export growth. Confidence is expected to return as the country puts a long period of mourning its late King Bhumibol Adulyadej behind it and rallies around Vajiralongkorn, his successor.

“The Thai economy shows signs of a nascent recovery but faces challenges on the path toward a broad-based and sustained recovery,” Kiatipong Ariyapruchya, senior Thailand economist at the World Bank, noted in 2016, citing “lackluster export competitiveness and skills mismatch.”

Thai gross domestic product grew an average of 3.3% year-on-year in the first three quarters of 2016, partly due to cheaper energy and weaker capital goods imports. “The key upside surprises were public investment, private consumption, and… tourism,” observed Nalin Chutchotitham, an economist at HSBC in Bangkok.

Public investment is expected to remain one of the key drivers of GDP growth in 2017, particularly in major transport infrastructure. Nine projects worth ฿488.3 billion are to start construction this year. “Sufficient transportation infrastructure is vital to putting Thailand on a higher growth trajectory,” said Usara Wilaipich, senior economist for Thailand at Standard Chartered Bank in Bangkok.

Lingering external uncertainties (such as the trade policy of the United States and slow overall Asia-Pacific growth) are likely to dampen exports. In addition, the 2014 the military coup and the junta’s human rights violations have upset relations with key trading partners.

For example, the European Union’s free trade agreement with Thailand is now indefinitely suspended. The EU has also put Bangkok on notice over “illegal, unregulated and unreported” fishing and will again consider a total ban on fish exports this year, threatening an industry worth about €2.8 billion annually.

In the longer term, Usara noted that Thailand is well positioned to become a regional hub for global investors if it can enhance its logistics connectivity with Cambodia, Laos, Myanmar and Vietnam. “This should help Thailand to attract more foreign direct investment, which has seen sluggish growth in recent years,” she added.

One obstacle could be demographics. Thailand’s working population is ageing and factory productivity growth slowed to an average of just 2.6% from 2001-14. This aspect, as well as the shift to services, poses risks to Thailand’s growth, which is currently led by manufacturing exports.

To help modernize the economy, the government has earmarked ฿27.9 billion of investment for 2017-21 in four digital areas: commerce, entrepreneurship, innovation and content. Next year, Thailand’s first technological innovation park is scheduled to open in Chonburi province, southeast of Bangkok.

The ฿10-billion project will promote Thai tech startups and hopes to attract global tech companies to invest in data servers and research and development as a hub for the Association of Southeast Asian Nations member countries.