Downside risks continue to hover around Thailand’s GDP growth following drag on manufacturing

Downside risks continue to hover around Thailand’s gross domestic product (GDP) growth following the drag on the country’s manufacturing sector. While it accounts for almost 30 percent of GDP, contribution from manufacturing came in a mere 0.25 percentage point in 1H16. That is equivalent to slightly over 7 percent of overall GDP growth.

Any improvement since 2014 has been limited and it is not hard to explain why. Exports are likely to contract again this year, keeping capacity utilization some way off from its normal level. A quick look at the balance of payments also suggests that more Thai companies have been stepping up on their overseas investment.

It is crucial to see a sustained recovery in the sector before we get more upbeat on the economy’s overall growth potential. Manufacturing employs about 16 percent of the workforce. Coupled with the similarly weak agriculture sector, it is little wonder that wage growth is trending at a mere 2 percent annual pace. GDP growth may remain stuck in the 3-3.5 percent range for longer than initially expected.