Transcript
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Speaker: Hello from Hong Kong and welcome to Under the Banyan Tree where we put Asian markets and economics in context.
Speaker: I'm Fred Newman, Chief Asia Economist and I'll be flying solo today as my co-host Harold van der Linde also known as the Flying Dutchman is away on business.
Speaker: Nevertheless, I'm joined here in the studio today by Aris Dakenai and we'll be talking Thailand, an economy that has once been
Speaker: the darling in terms of Asian economic development and has had a bit of a rough time of late.
Speaker: In the meantime, a few stats about Thailand.
Speaker: This year you'll have some 35 million tourists squeezing onto the beaches of Thailand.
Speaker: So still a major, major industry, the tourism sector, accounting for well over 10% of GDP by some measures.
Speaker: But Thailand is also the 10th largest carmaker in the world and probably among the top three, if not top two, of pickup producers.
Speaker: But then there's also much more to the Thai economy.
Speaker: For example, durian, that fruit that some would call smelly and others would just call aggressively aromatic, has been a major export item.
Speaker: item in Thailand is now the number one durian exporter in the world and those exports alone account for 1% of GDP.
Speaker: So a colorful country in many, many ways, lots to talk about.
Speaker: So welcome Aris to the studio.
Speaker: Hello, hello.
Speaker: Hi, Fred.
Speaker: Good to have you under the banyan tree here, Aris.
Speaker: So let's talk big picture first.
Speaker: Here's an economy
Speaker: that has enormous growth potential in many ways.
Speaker: The leading industries are well known.
Speaker: Tourism is still booming, for example.
Speaker: We have medical tourism.
Speaker: We have the car industry that we just mentioned.
Speaker: But actually, Thailand's GDP is barely above where we were in 2019 before COVID struck.
Speaker: And in fact, that makes it one of the slowest recoveries in the ASEAN region.
Speaker: How do you account for that very slow recovery in Thailand?
Speaker: Before actually talking about how slow Thailand is growing right now, I just want to picture how good Thailand was growing in the past.
Speaker: Between 1980 to 2019, Thailand was roaring.
Speaker: You basically had a lot of FDI.
Speaker: Thailand was the gateway of Japan to enter the ASEAN region.
Speaker: And from 1980 to 2019, Thailand actually reduced its income gap with the U.S. by threefold, reducing the poverty rate from 77% to around 13.5% in 2019.
Speaker: So it did have a really good run.
Speaker: And the numbers that we're seeing today is far from comparable to what we've
Speaker: what we saw over the 40-year time period.
Speaker: So what is Thailand facing today?
Speaker: Well, one, you have an aging population by 2030.
Speaker: It will be what you call a super-age society, which around 20% of the population will actually be age 65 and above.
Speaker: And that is different from some of the neighboring ASEAN economies, right?
Speaker: The Philippines, for example, are very young populations.
Speaker: So Thailand is more the aging structure within Southeast Asia.
Speaker: Yeah, so for the Philippines in comparison, your median age is 25 years old.
Speaker: In Thailand, it's 40.1.
Speaker: Now, of course, the more you age, the less that you earn.
Speaker: The more people that retire, the more that you consume, the less that you save.
Speaker: And with the less that you save, the less you invest.
Speaker: And with less investment, of course, is less capital and, of course, less growth.
Speaker: It's a big of a challenge.
Speaker: How do you actually get yourself together at such an aging population and find a way to get savings, to get money, to continue investing to keep the Thai economy growing?
Speaker: It's a big of a challenge.
Speaker: And I just want to add, it's not just an aging society.
Speaker: It's also a highly indebted society.
Speaker: Just a quick number, household debt as a percent of GDP, 91%.
Speaker: How huge is that?
Speaker: It's actually not just the largest in ASEAN, but it is also the largest amongst all the upper middle income economies.
Speaker: So it's a big of a challenge because you need to save a lot of the income that you earn on a daily basis to service the debt that you currently have.
Speaker: Okay, there's a lot there.
Speaker: Let's unpack that a little bit.
Speaker: And before we delve into some of the domestic issues that you mentioned, high indebtedness, for example, let's just put a regional perspective on it.
Speaker: Because Thailand, as you say, was the magnet of foreign investment in the past, a gateway for Japanese manufacturers to enter the region, for example, very dependent on Japanese FDI, foreign direct investment for many years.
Speaker: Now, what you have in ASEAN at the moment in Southeast Asia is actually a bit of a revival of foreign investment.
Speaker: So there is supply chain diversification coming out of China into Southeast Asia, particularly Vietnam and Malaysia benefiting from that.
Speaker: Thailand seems to be missing out a little bit.
Speaker: Is that the right impression here in terms of it's not joining in Vietnam and Malaysia in terms of being able to attract foreign direct investment to the same extent?
Speaker: It's actually a very mixed bag because if you look at FDI commitments, FDI approvals, it's actually one of the highest in history for Thailand at around 4% of GDP.
Speaker: And yet, the FDI inflows coming in is just 0.4%.
Speaker: So what explains this massive gap?
Speaker: I would have to say that one is policy uncertainty.
Speaker: Over the past 13 months or so, we've had two changes in government.
Speaker: We're not sure whether the digital wallet scheme that the current government is trying to push, whether it will actually see the light of day or not.
Speaker: It's a stimulus package for the broader population, which will drive growth.
Speaker: Yes, drive growth.
Speaker: 3% of GDP of cash handouts.
Speaker: We're not sure whether that will see the light of day.
Speaker: And when there is policy uncertainty, you want to hold back your investments.
Speaker: When you see growth slumping, you also want to hold on to your investments.
Speaker: Just wait and see where Thailand will go.
Speaker: So the investment intentions are there, but the actual inflows are not.
Speaker: Now you're referring to sort of near-term challenges.
Speaker: We had changes of government, a bit of maybe political uncertainty, if you will, people waiting for what the new policies will be.
Speaker: What you're not getting at is that there's anything fundamental why maybe investment is going to other countries, why Thailand isn't receiving as much foreign investment at the moment.
Speaker: So you don't think there's a competitiveness problem per se.
Speaker: There's not necessarily a labor force issue or an infrastructure issue.
Speaker: It's really more the uncertainty that's holding Thailand back at the moment.
Speaker: So one is the uncertainty issue.
Speaker: The other issue is also demand.
Speaker: I always put up this fact, the biggest IKEA in the world is in the Philippines.
Speaker: It's because their demographic dividend is just so huge, so positive.
Speaker: But then if you have an aging and highly indebted society,
Speaker: you won't really put up a factory in Thailand to cater to the domestic demand but to be an export hub to elsewhere.
Speaker: But amongst ASEAN, a lot of other countries have also achieved this export hub status such as Vietnam in Malaysia.
Speaker: So I wouldn't say that Thailand is losing its competitiveness, but it's more of ASEAN just becoming more competitive altogether.
Speaker: Which is a good reminder, actually, that there are many economies now that are trying to attract foreign investment, right?
Speaker: It's not just Southeast Asia, but of course, Mexico, you got Bangladesh and India.
Speaker: So it's become more competitive than maybe in the 80s when Thailand was sort of, you know, the main magnet for foreign investment.
Speaker: There are other players now, and so that you need to up your game, so to speak.
Speaker: Now, that is an interesting...
Speaker: international context.
Speaker: Now, you referenced a few times high household debt, which is interesting, because we tend to think about American households historically at very high household debt.
Speaker: We know in this region, we know Korea is relatively elevated.
Speaker: It's usually more high income economies where you have high household debt.
Speaker: But you mentioned Thailand as well.
Speaker: So where does a debt sit in Thailand?
Speaker: Why are Thai so indebted?
Speaker: Why do Thai households have so much?
Speaker: You said 90% of GDP household debt, that is not far off from US levels, if not perhaps even higher.
Speaker: So the current monetary policy in Thailand is 2.5%.
Speaker: And a lot of people today are complaining that it's the highest policy rate for over the decade.
Speaker: And it is!
Speaker: But at 2.5%, it is the third lowest policy rate in the world.
Speaker: And before it was 2.5%, from around 2016 to 2019, it was around 1.5%.
Speaker: And even when the economic crisis brought by the 2011 floods, which started the easing cycle to begin with.
Speaker: And these were severe local floods around Bangkok that really impacted the economy.
Speaker: That first led to the cutting cycle from 3.5% to around 2.5%.
Speaker: When the economy normalized,
Speaker: instead of bringing the interest rate back to 3.5, they cut it further to 1.5 up until 2019.
Speaker: Now, of course, if you lower the policy rate, you lower the cost of borrowing.
Speaker: And if you lower the cost of borrowing, you incentivize debt, you incentivize leverage.
Speaker: So with policy rates just at 1.5%,
Speaker: a lot of people just decided to take up credit at a time when Thailand was growing at around 3% to 5%.
Speaker: Because if your policy rate is 1.5%, there's not much of a hurdle rate to be able to pay for that debt.
Speaker: So a lot of the growth that happened from 2016 to 2019 was very highly debt-driven.
Speaker: And now, it's a really big challenge for Thailand on how are you able to deleverage your high household debt levels but still continue to grow.
Speaker: Yeah, and that's, of course, what many economies around the world face, but usually the more advanced economies are facing that.
Speaker: So it's unusual that we have this high debt load.
Speaker: Of course, that would mean that we're going through maybe slower consumption growth for the years ahead as households work through that debt, which in turn means we need to drive growth maybe on the external side.
Speaker: And here we talked about manufacturing, maybe not doing too greatly, but there are other sectors and those of course include tourism.
Speaker: We can't talk about Thailand without tourism.
Speaker: Now, we've referenced already 35 million tourists squeezing onto the beaches of Thailand this year, but that's actually down from 2019 still.
Speaker: Yeah, it's still down at $35.5 million.
Speaker: That's much lower than the $40 million that we were getting pre-pandemic.
Speaker: But what's promising is the fact that, okay, the reason why it's low is because the Chinese tourists aren't coming back.
Speaker: Domestic demand, or at least demand in China, has slumped a little bit because of the real estate struggles that they're experiencing.
Speaker: But nonetheless, it's a good positive note to see that there are other tourists flocking in.
Speaker: They're not the Chinese.
Speaker: The Chinese are 70% at pre-pandemic levels, but the Russians are 70% above pre-pandemic levels.
Speaker: The ASEAN, intra-ASEAN tourism, which is a big part of tourism, is 20% above pre-pandemic levels.
Speaker: Taiwan, more than around 50%.
Speaker: What about India?
Speaker: We hear a lot about Indians traveling.
Speaker: Are they also flocking to Thailand these days?
Speaker: I think it's actually very seasonal because hosting an Indian wedding in Thailand has become a big industry.
Speaker: And the numbers are quite weird because sometimes it's around 20% above pre-pandemic levels.
Speaker: Sometimes it's 80%.
Speaker: So I do think they come in big flocks.
Speaker: which led to the volatility.
Speaker: But we know all how big an Indian wedding is.
Speaker: So that's certainly big, big business for Thailand if we have Indians moving their weddings to Thailand.
Speaker: Now, maybe this is a great spot to just take a quick break.
Speaker: And when we come back, we want to explore some of the potential that Thailand has because it's easy to get a bit downcast when we look about manufacturing, when we look about household debt.
Speaker: But there's also some promises in Thailand.
Speaker: We want to tease those out when we come back.
Speaker: Well, welcome back, everybody.
Speaker: Well, we did talk about Thailand, Thailand's economic challenges, but I want to put to Aris this question about, you know, it is still a very creative society.
Speaker: What are some of the overlooked strengths?
Speaker: So if you think about exports, for example, we have tourism is big.
Speaker: We referenced durian, that fruit that they're exporting, 1% of GDP.
Speaker: They're still big car exporters, still export electronics.
Speaker: We know growth must come from the external side because domestic demand is a bit constrained at the moment.
Speaker: What are some of the other industries you're looking at?
Speaker: So it's actually something that the current government coined as what you call soft power.
Speaker: Soft power?
Speaker: Yeah.
Speaker: Soft power is basically selling stuff based on entertainment and not so much coercion.
Speaker: Now, again, that's just the definition that you search in Google.
Speaker: But it's the term that they use for Thailand's creative industry.
Speaker: So, what do you think here about like a Korean wave, music, film industry, cosmetics, soap operas?
Speaker: Is that what we're talking about?
Speaker: Yes, exactly.
Speaker: And speaking of, I want to name Lalisa Manoba, who she was part of Blackpink, one of the biggest K-pop groups out there.
Speaker: One of the members is Thigh.
Speaker: And this person is not afraid to basically—she grew up Thigh.
Speaker: She trained in Korea and she joined the K-pop group.
Speaker: But every time she performs a single album or a single song, she would always shoot it in Thailand.
Speaker: She actually shot her latest music video in the Chinatown of Thailand.
Speaker: And you have talents such as Lalisa, such as the Thailand's movie industry.
Speaker: I just want to name this movie called How to Make Millions Before Grandma Dies.
Speaker: How to Make Millions Before Grandma Dies.
Speaker: That's quite a long movie title.
Speaker: And it sounds morbid, but it's really not.
Speaker: It's very touching.
Speaker: Just to put some context, I went to Shenzhen two weeks ago.
Speaker: This movie came out in April.
Speaker: And the friend of mine who was supposed to pick me up was late because he got caught up watching this movie which is still showing in the cinemas in Shenzhen.
Speaker: in August, even though it was there, I mean, the movie was already out since April.
Speaker: So it's a big successful movie.
Speaker: It's the same.
Speaker: Yeah.
Speaker: In China.
Speaker: So we have a tie.
Speaker: Yes.
Speaker: That was How to Make Millions Before Grandma Dies.
Speaker: How to Make Millions Before Grandma Dies.
Speaker: That is a big movie in China.
Speaker: So it's in tie, but it's playing in Chinese cinemas dubbed or with subtitles?
Speaker: Subtitles.
Speaker: With subtitles.
Speaker: And yet it's very, very successful.
Speaker: It's very, very successful.
Speaker: Even here in Hong Kong, it's still showing in one of the more niche cinema houses right there.
Speaker: It won an award in New York.
Speaker: In other words, it's a great movie.
Speaker: And it's a reminder, I think, that when we think about development in Asia, we think about semiconductor industry, we think about the hard metal of investment and infrastructure and so forth.
Speaker: But actually, these are big, big industries, they're creative industries.
Speaker: And probably there's also mutual reinforcement with the tourism industry.
Speaker: Because as much if you have...
Speaker: Thai movies and Chinese theaters, people in China will probably travel to Thailand or more likely travel to Thailand to spend there.
Speaker: And so that has a reinforcing mechanism.
Speaker: So I want to just to show, I mean, to pick up a stat.
Speaker: Across ASEAN, you have services exports.
Speaker: Of course, we know Thailand is number one because it's the premier tourism destination in the world.
Speaker: If you actually remove tourism in the equation,
Speaker: Thailand is number two.
Speaker: Philippines is number one because it's the global capital of BPO's.
Speaker: But then again, at number two is Thailand.
Speaker: And it's a country...
Speaker: that English isn't the most spoken language.
Speaker: If you're going to put out a movie, if you're going to put out a song, you have to have the struggle of reading the subtitles and all.
Speaker: Even then, you still have Thailand at number two.
Speaker: It's a big industry.
Speaker: And just one more fact, they have 1.9 million
Speaker: influencers, paid influencers.
Speaker: That's the highest influencer per capita in ASEAN.
Speaker: Okay.
Speaker: That's a statistic I was not aware of.
Speaker: So Thailand has the highest per capita influencers in ASEAN, which I guess also speaks to this reservoir of creativity that exists in Thailand.
Speaker: And
Speaker: I think then points to maybe despite all these dark clouds that we discussed, actually there's still energy behind the economy and there is things happening and there is a path forward, but it might be more on the creative side, on the services side, and maybe that's Thailand's edge when it comes to the next several years.
Speaker: I would have to say maybe perhaps the dynamism has faded a little bit if you compare it from the booms of the 1980s up until the 2000s.
Speaker: But yes, I agree with you.
Speaker: The vitality is still there.
Speaker: The energy, the determination is still there.
Speaker: And that's why we keep calling it the land of the smiles.
Speaker: Well, thank you very much, Aris.
Speaker: This is wonderful.
Speaker: You know, the way you describe it, I feel like I should book my next holiday to Thailand and, you know, see for myself the creative industry dive.
Speaker: Thank you very much for joining us.
Speaker: Thank you for having us.
Speaker: And thank you very much, ladies and gentlemen, for joining us here under the Banyan Tree.
Speaker: We'll be back in the very near future again with another episode.
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