Slow and fragile recovery is being seen which is driven by boosted consumer confidence in Thailand despite inflation and an effective haircut in real wages. Employment levels in Phuket, the first foreign tourist destination to reopen, are still only at 50% of pre-pandemic levels.
Thailand’s former Premier has slammed a 5% increase in the minimum wage for Thai workers as ‘sad’ and called for a Pheu Thai-led government to steer the economy towards a minimum wage of ฿800 per day over two terms in government. The slow pace of Thailand’s economic recovery means that it will be the second half of next year before the kingdom’s economy will have recovered from the loss of GDP caused by the virus emergency. In the meantime, the country, like others worldwide is reeling from the aftermath of the Russia-Ukraine war and the growing impact of rising geopolitical tensions which will see an elevated level of inflation going into next year and a real loss of income for many working Thais despite the new minimum wage which will come into force on October 1st.
A top economist with the Economic Intelligence Centre, the research arm of Siam Commercial Bank in a briefing this week stated that it will be the second or third quarter of next year before Thailand recovers from the economic setback inflicted by the country’s shutdown in 2020 to deal with the virus emergency.
This effectively means that the kingdom has lost four years of economic opportunity to the emergency and is still very much depending on a rebound of its foreign tourist industry to return to a growth outlook.
Altered world economy, only 50% of hotel workers in Phuket now returned to work despite the recovery
At the same time, this is happening in a very much altered world economy because of the fallout of US tensions with China and as a result of the Russia-Ukraine War which has fundamentally altered the world economic order in terms of energy costs, geopolitics and supply chain security.
This was highlighted by Mr Suksit Suvunditkul, the President of the Southern Chapter of the Thai Hotels Association who explained this week the currently Phuket, one of the first popular destinations to reopen to foreign tourists in Thailand has only seen employment levels in the industry return to 50% of what they were in 2019 at this point in the slow recovery of the economy.
This week, the Economic Intelligence Centre, suggested that Thailand could achieve as many as 10.8 million foreign tourists this year after it raised its projection from an earlier estimate of 7.8 million.
The economic research unit predicted that in 2023 the kingdoms will welcome 28.3 million visitors or 70% of the level seen in 2019.
Inflation in Thailand to remain elevated well into 2023 with core inflation currently standing at 3%
The Economic Intelligence Centre also predicted that inflation in Thailand, although well behind that seen in the United States, the United Kingdom and Europe, will be marginally higher than expected this year with a rate for the era of 6.1%.
The rate will taper off in the last quarter but will be elevated at over 3% going into 2023.
In a separate note, TTB analytics, the research arm of TMB Thanachart Bank, indicated that there was an acceptance among employers of the new minimum wage deal concluded last week.
It highlighted that most firms pay higher than the new rate set but that it may pose an issue for small firms engaged in labour-intensive endeavours.
The small bank’s economic unit did however warn that core inflation was steadily rising in Thailand and had now hit 3% which is at the edge of the Bank of Thailand’s range of 1% to 3%.
This will mean an elevated inflation level going into 2023 and beyond meaning that economic conditions have changed significantly from during the pandemic and indeed before it.
Three-year pay freeze means Thai workers even with October’s minimum wage rise, have taken a pay cut
This impacts the country’s retail trade, the spending power of the population and the country’s competitiveness, especially for foreign tourists.
It comes as Thai workers at the lowest level will benefit from a rise in the minimum wage from October 1st of 5.12% on average with a rate of ฿354 per day for places like Chonburi and Rayong while in less well-off provinces such as Udon Thani, the rate will be ฿328.
This is the first rise in the minimum wage since 2020 and many economists have noted that with elevated inflation, even this year, the wage increase for the less well-off represents a cut in wages although the impact of this has been felt by the economy.
Remarkably, consumer confidence in Thailand, at the same time, has now risen for seven months in a row
Despite this, the Economic Intelligence Centre predicts that consumer expenditure this year will grow by 4.4% with a rising consumer confidence index hitting a seven-month high in August according to the University of the Thai Chamber of Commerce (UTCC) coming in at 43.77 compared to 42.2 in July.
The rise in the minimum wage has been welcomed by Sanan Angubolkul of the Thai Chamber of Commerce who noted that the October 1st pay hike comes after a three-year pay freeze.
He said it was appropriate at this time.
‘There are about 10 million workers eligible for the wage rise. Their higher income will be good for the overall economy,’ he explained.
The new minimum pay rise was slammed by former Premier Thaksin Shinawatra this week as inadequate.
Former Premier Thaksin Shinawatra calls for massive increase in the minimum daily wage over two government terms and a more radical economic shift
He was speaking as Mr Tony Woodsome on the Clubhouse application where he called for a minimum daily pay rate of ฿800 for every Thai worker, a 226% increase on the new rate arrived at after talks with employer groups in Thailand, Thai labour unions and the Ministry of Labour led by Suchart Chomklin.
‘Today the minimum wage of the average Thai should be 800 baht per day so as not to starve the people as the cost of living has risen tremendously,’ he said. ‘Thailand’s workforce wages are very different from those of other countries, and this is not enough for them to be able to have a decent life, which in turn causes them to take on debt. We must accelerate the development of the country because the current expenditures have already outpaced revenues considerably. The more you look, the sadder it is.’
The former Thai prime minister whose Thai Rak Tai Party won two General Elections by a landslide in 2001 and 2006 due to Thaksin’s populist policies based on a bold vision of empowering the less well-off, pointed out that Thailand must shift from labour-intensive industry to higher paid work which would call for retraining the existing workforce while deploying robotics to do repetitive and manual work.
Make use of robots for repetitive manual work
He said that if the public wants to see a change it must elect a Pheu Thai Party government in the next election to fix the economy in its first term while in a second term, the reelected government would introduce a ฿800 per day minimum wage.
‘If the government is scared of raising the minimum wage as they are afraid that there would not be enough workforce, then they should rethink. The labour force can come from neighbouring boring countries, while in the future labour-intensive industries could be undertaken by robots,’ he outlined. ‘Thai workers could be retained to do more skilled jobs.’
Thaksin pointed to the rate per hour minimum wage in Australia which equates to ฿493 per hour or ฿424 per hour in the United Kingdom or Sweden where there is a rate of ฿418 per hour.
The conclusion to the current round of negotiation has still left some employer groups unhappy particularly those engaged in labour-intensive industries such as food processing while they also have to grapple with higher charges for electricity and energy.
Unions, at the start of negotiations with employers, looked for a ฿492 per day minimum daily wage
Thai trade unions initially demanded a rate of ฿492 per day when they first came to the table with employers and the government earlier in the summer.
Back in Phuket, Mr Suksit explains that most employers in his industry are already paying more than the minimum wage but explained that in the current economy with a lower number of foreign tourists, salaries now are 50% of the revenue received compared to 30% previously while higher energy costs have pushed electricity bills to 15% of turnover for many operators when it used to be 5% to 6%.
Meanwhile, the Economic Intelligence Centre review this week highlighted the deteriorating situation with the Chinese economy and threatened recession in the United States, the United Kingdom and European Union as key concerns although the unit suggested that western economies may be more resilient and come out of recession quite quickly.
Thailand’s ample foreign reserves have fallen this year with higher current account deficits run up but this is projected to improve at the end of 2022
It comes as Thailand continues to run a significant current account deficit with the baht falling to its lowest level in recent times on Thursday against the dollar at ฿36.85 while the kingdom’s still ample foreign exchange reserves are down to $213 billion from $259 billion at the end of January.
The situation for the baht is expected to improve towards the end of the year with higher visitor numbers projected and a projected drop in oil prices.
The baht is expected to trade at between ฿35 and ฿36 per dollar before climbing by the end of 2023 to ฿33.5 and ฿34.
The centre did not see an emergency developing that would deeply impact the economy despite rising and dangerous tensions between China and the United States over Taiwan but did expect the divergence between the two economic powers to have an impact on the development of the world economy going forward this impact a relatively open trading economy such a Thailand which has strong economic ties with both
This could see firms holding higher inventory levels, US firms establishing production facilities in other Asian countries but also the homeshoring by the United States of key areas of production and an overall decrease in international trade which could be a loss to Asia and Thailand.