Thailand’s weak manufacturing continues to concern GDP growth

The manufacturing sector of Thailand has continued to be a drag on overall growth of the economy. Despite being the largest sector of the economy, manufacturing continues to be lagging behind and is creating a significant impact to wreck the country’s gross domestic product.

Real GDP came in at 3.2 pct y/y, the fastest since past three years. However, there remains little room for an optimistic outlook over the economy. Despite constituting almost 30 pct of the nation, manufacturing contributed a mere 6.5 pct of overall GDP growth since 2013.

The manufacturing sector also employs 16 pct of the labor force, second only to the 33 pct in agriculture. Yet, manufacturing was the worst performing non-agriculture sector in the economy. The sector shrank 0.33 pct y/y) in 1Q16, its worst quarterly performance over the last two years.

In contrast to manufacturing contribution to the overall economy, small sectors have made up for a larger proportion of the GDP. Minute sectors, financial intermediaries, hotels and restaurants have contributed nearly 50 pct of the GDP growth over the past three years.

There has also been much talk from the government in dealing with increased competition from countries like Vietnam, the Philippines and frontier countries like Myanmar, emerging as alternative low-cost manufacturing destinations, though nothing has been achieved.

"In conclusion, manufacturing is not dead in Thailand. It has simply gone cold," DBS said in a research note.

However, hopes still remain for the sector to recover soon enough, helping GDP rebound as well.