The key drivers of growth remain private consumption and public investments, such as the dual rail track and rail upgrading projects, the report says. Tourism growth has been strong in 2016, with the number of tourist arrivals, mostly from China, increasing by 13.1% in the third quarter.
In the fourth quarter, a temporary slowdown and the postponement of economic activities during the period of mourning after the passing of HM King Bhumibol Adulyadej in October are expected to be offset in part by holiday tax breaks on shopping and domestic tourism at the end of the year.
“To remain competitive, Thailand has to embark on extensive reform of the economy to lay down a future for the country in areas such as infrastructure and advanced manufacturing,” said Kobsak Pootrakool, Vice Minister for the Office of the Prime Minister. “At the same time, ensuring that the grassroots can reap the benefits of development.”
As the ageing of Thailand’s working-age population begins to affect its economy in the next five years, it will be increasingly important for Thailand to harness new engines of growth, in particular the service sector, to take the country from upper-middle to high-income levels, according to the report.
“Thailand’s economy is on track to recovery, and further strengthening the service sector will help create new and better jobs, higher incomes and more opportunities for Thai people,” said Ulrich Zachau, the World Bank Country Director for Southeast Asia.“Liberalising services and ensuring all Thai people have access to quality education to acquire skills for work in a modern economy will be key to raising productivity in the service sector and to a continued acceleration of economic growth in Thailand.”
The service sector is 30% less productive than manufacturing in Thailand, according to the new Thailand Economic Monitor. Services account for 50% of gross domestic product (GDP) and employ 40% of the workforce. In comparison, the manufacturing sector employs 15% of the workforce and yet accounts for as much as 35% of GDP.
“The combination of private sector initiatives and government support has led to successes in the service sector in many ASEAN countries,” said Kiatipong Ariyapruchya, World Bank Senior Economist for Thailand. “Thailand’s continued commitment to structural reforms can unleash the potential of the service sector and lift Thailand’s long-term growth path to above 4%."
Thailand has generally more restricted service sector markets than its peers in the Association of Southeast Asian Nations (ASEAN). Some services are more protected from foreign and domestic competition, such as education and health facilities, which are required to be majority Thai-owned.
The World Bank report notes that liberalisation of professional services can help increase efficiency, productivity, and quality in the service sector, for the benefit of Thai consumers. Thailand can strengthen its service sector by providing a supportive regulatory environment for doing business, fostering competition and deepening trade integration with the ASEAN Economic Community (AEC).