Today : Mar 15, 2025
Economy
02 March 2025

Thailand’s Manufacturing Sector Faces Severe Challenges

Industrial production continues to decline impacting economic growth and employment

The Thai economy is currently facing significant challenges, particularly reflected through concerning indicators of industrial production and economic competitiveness. According to reports from various sources, the industrial production index for Thailand has dropped to 57.27% as of the fourth quarter of 2027, showing a decline from 58.32% over the previous quarter and 57.36% year-on-year. This consistent downward trend raises alarm over the sustainability and growth potential of the country’s economy.

The lower productivity figures are indicative of broader issues affecting the manufacturing sector, which accounts for about 10% of the Gross Domestic Product (GDP). The dire situation is particularly acute within six identified vulnerable industries: automotive, chemicals, rubber and plastics, semiconductors, construction materials, and textiles. Specifically, the automotive sector has seen its share of GDP drop to 2.0%, heavily impacted by the global shift toward electric vehicles (EVs) and loss of market share to foreign competitors.

According to the Office of Industrial Economics (OIE), the proportion of the manufacturing industry utilizing production capacity fell below 60% for the third consecutive year, at 58.44% compared to 68.11% back in 2015. This persistent underutilization prompts fears over future investment opportunities, particularly with declining production projected at 1.5 million units for the automotive industry this year, down from previously anticipated figures. Observers have attributed this slump partly to excessive imports of competitive products, raising concerns over domestic production capabilities.

Dr. Pasakorn Chaiyarat, Director of the OIE, noted, "The manufacturing sector has been under pressure from several fronts including technology changes and price competition from EV technologies, causing overall attendance to decrease. We’re currently drafting policies aimed at revitalizing nine at-risk industries, which will be presented to the cabinet next week for support and funding. This also includes proposed measures to shift industries toward more sustainable practices and innovative products to regain market traction." He indicated the urgent need for enhanced industrial reform centered around innovation and competitiveness.

The Bank of Thailand has recently lowered the policy interest rate by 0.25%, now at 2.00%, as part of efforts to alleviate financial burdens on producers. This adjustment aims to stimulate investment and encourage job creation, but its effectiveness remains uncertain as the lower production indices raise concerns about overall economic growth potential.

Dr. Danucha Pichayanan, Secretary-General of the National Economic and Social Development Council (NESDC), remarked on how prolonged low production not only hampers overall economic stability but can also lead to increased unemployment as business viability diminishes. "The relationship between diminished productivity and its inherent costs to labor and economic confidence cannot be understated. The sectors at risk need smart recalibration to respond effectively to market demand and global trends," he added.

The current economic environment, exacerbated by high household debt levels and increased prudence among lenders, is creating additional burdens for producers. Many businesses are now faced with rising operational costs with sluggish sales growth, impacting their competitiveness against imported goods.

Manufacturers are urged to reform practices, embracing new technologies and sustainable production methods, to compete more effectively within the current economic climate. Investments should prioritize innovation and the use of recycled materials, particularly within the plastics and chemicals industries. The country’s sustainable development agenda supports such initiatives aimed at creating high-value products capable of achieving economic growth.

Challenges persist as the government grapples with comprehensive measures to navigate the turbulent economic waters. The proposals currently under development focus on nine key industries such as automotive, electronics, and food production, striving to establish Thailand as production bases for innovative and sustainable products. These recommendations arise from collaborative efforts between government agencies and private sectors, intended to yield actionable outcomes.

Despite the ability to increase foreign direct investments (FDI) as indicated by recent statistics, the fabric of domestic production capacity appears threadbare as highlighted by Dr. Narin Pissalayabut, senior researcher at the Thailand Development Research Institute (TDRI). He expressed concerns about the disjointed nature of investment and production capacities exacerbated by imports far outpacing local outputs. "Investment alone cannot remedy existing structural inefficiencies without reciprocal improvements within domestic production domains," he pointed out.

Industry leaders, including Kriangkrai Tiennukul, President of the Federation of Thai Industries, remain cautious about competition from cheaper goods entering markets, particularly from China, as pricing pressures mount. He stressed the importance of joint efforts to recover the competitive edge needed to sustain economic growth, urging policy reforms and investment geared toward enhancing local capabilities.

Economists remain vigilant as they watch the manufacturing sector’s developments, cautious of predictions tying low production rates to broader economic downturns. Though optimism lingers over possible government-imposed measures and anticipated interest rate adjustments, the palpable uncertainty leaves stakeholders on edge.

Dr. Amorntep Chawla, Executive Vice President of CIMB Thai Bank’s research department, encapsulated the overarching sentiment of apprehension: “So long as the manufacturing segment continues on this downward spiral, the country’s economic recovery will remain hindered. Progress must commence from revitalization within our industries, especially automotive and electronics, which are pivotal for our economic future.”

With these multifaceted challenges surfacing amid cross-industry dialogues and cautious optimism around policy reforms, the road to recovery for Thailand’s manufacturing sector will require collaborative action and sustainable practices aimed at enhancing competitiveness, securing jobs, and substantiatively stabilizing the economy.