Thailand Economic Monitor July 2024: Unlocking the Growth Potential of Secondary Cities

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Key Findings

• The economy is projected to recover in 2024 supported by sustained private consumption as well as tourism and goods exports recovery. Growth is projected to accelerate from 1.9 percent in 2023 to 2.4 percent in 2024.
• Growth is expected to reach 2.8 percent in 2025, supported by both domestic and external demand. This outlook is further bolstered by the revised fiscal budget proposal for fiscal year 2025 and the anticipated acceleration in budget execution following significant delays earlier this year.
• Private consumption and tourism will be key drivers but their pace will slow. Goods exports are expected to rebound due to favorable global trade. Tourism is projected to return to pre-pandemic levels in mid-2025, set back by the Chinese economy.
• Headline inflation is projected to slow to a regional low of 0.7 percent in 2024, below the central bank's target range, due to the moderation in food and energy prices.
• Public debt is projected to rise to 64.6 percent in fiscal year 2025. The fiscal deficit is projected to increase to 3.6 percent of GDP as budget execution normalizes and fiscal stimulus measures aimed at boosting consumption are implemented, in line with the government's medium-term fiscal framework.
• Thailand faces the mounting challenge of reconciling fiscal sustainability and short-term stimulus. To enhance fiscal resilience amid rising spending needs, Thailand can start by focusing on more targeted social assistance and transfers to effectively support vulnerable households and poverty alleviation. In addition, Thailand has room to raise tax revenue, promote equity, create fiscal space and accelerate investment.

A section of the report which focuses on "Unlocking the Growth Potential of Secondary Cities" highlights that in the long-term, secondary cities have the potential to further enhance Thailand's productivity, spur its economic growth, and bolster its global competitiveness.

• Thailand's urbanization has been heavily focused on Bangkok, acting as a growth engine for the country. Bangkok as an urban agglomeration has a population 29 times larger than the next largest, Chiang Mai, and a GDP nearly 40 times greater than the next largest, Chon Buri.
• Bangkok's strategic geographic position within Southeast Asia, coupled with its comparatively developed infrastructure and transportation networks, has fostered economic growth and activities within the city and surrounding areas.
• While Bangkok's primacy drives growth, congestion and vulnerabilities show the need for balanced urbanization. The 2011 floods highlighted Thailand's economic vulnerability due to the concentration of critical industries in Bangkok. Climate change will further strain Bangkok's infrastructure and the nation's economy, emphasizing the need for a more diversified economic base.
• Bangkok's economy shows signs of stagnation, as its GDP growth has been roughly equal to its population growth. This suggests that the city's economy is mature and potentially saturated, leading to little or no improvement in productivity.
• Recently, per capita GDP growth in secondary cities has been nearly 15 times higher than in Bangkok. This faster growth in GDP per capita demonstrates the improved productivity, efficiency, and economic potential of Thailand's secondary cities.
• Secondary cities play a pivotal role in regional development serving as centers of local government and industry, satellite regions around Bangkok, or key economic trade corridors. Acting as hubs of regional economic activity, they help reduce the strain on Bangkok by providing alternative locations for businesses and industries. These cities play important roles-not only for creating jobs and economic diversification but also by promoting more balanced spatial development across the country.
• A main challenge that keeps secondary cities from realizing their economic potential is its overly dependence on nationally raised revenues. If local governments have greater authority over urban planning, infrastructure development, and access to long-term financing mechanisms-complemented by robust fiscal instruments such as property taxes, income tax piggybacking, and user charges - these cities could effectively chart their own economic growth trajectories.