urban property, bubble economy, urban middle class, GDP growth forecast, manufacturing growth
The recent history of Thailand’s economy is defined by more than a decade of sustained and rapid economic growth beginning in 1985, followed by a severe recession that started in late 1997. During the boom years, economic growth averaged more than 7 percent annually, one of the highest rates in the world. The crisis of 1997 and 1998 wiped out some of the gains of the boom and forced major adjustments in Thai industry and economic policy.
Many different factors contributed to the rapid growth of Thailand’s economy. Low wages, policy reforms that opened the economy more to trade, and careful economic management resulted in low inflation and a stable exchange rate. These factors encouraged domestic savings and investment and made the Thai economy an ideal host for foreign investment. Foreign and domestic investment caused manufacturing to grow rapidly, especially in labor-intensive, export-oriented industries, such as those producing clothing, footwear, electronics, and consumer appliances. These industries also benefited from a tremendous expansion in world trade during the 1980s. As industry expanded, many Thai people who previously had worked in agriculture began to work in manufacturing, slowing growth in the agriculture sector. Meanwhile, manufacturing growth spurred the expansion of service sector activities.
By 2000 Thailand’s per capita income reached $2,000, making it an upper-middle income developing economy. Although Thailand was technically still a poor country, spectacular income gains enjoyed by the urban middle class made the country one of the world’s large markets for luxury cars and other expensive consumer goods. However, by Asian standards the gains of growth were not distributed equally among the Thai population: between 1981 and 1994 the incomes of the richest 20 percent of the population grew significantly in comparison to those of the poorest 20 percent. Nevertheless, nearly all Thai benefited in some fashion from growth. The percentage of the population living in poverty fell from 23 percent in 1981 to less than 10 percent in 1994.
In the early 1990s a series of economic policy reforms introduced by the Thai government made it easy and attractive for foreign banks to offer loans to Thai banks. The Thai banks used the capital to lend money to domestic finance companies, property developers, and other investors, stimulating an investment boom. In an atmosphere of great optimism about continued rapid growth, the resulting investment boom created a “bubble economy” based on speculation in urban property and stocks. The bubble burst in 1996 and 1997, when stock and property prices declined steeply. As speculators in these sectors failed to repay loans, many Thai banks became unable to service their foreign debt, causing investor confidence to fall sharply. The consequent outflow of capital caused the Thai banking system to crash in mid-1997. The resulting credit shortage drove many companies into bankruptcy and created a large pool of unemployed workers. Thailand’s economy remained deep in recession through 1998, with gross domestic product (GDP) shrinking an estimated 8.5 percent that year. The economy began to pick up again in early 1999, with GDP growth forecast at 1.5 percent for the year.
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