BANGKOK -- Thailand's economy, which was Southeast Asia's growth dynamo for years, is now seeing its biggest dip in two decades.
Faced with decreased consumer spending, retailers are making desperate efforts to lure back shoppers.
Last month, Tesco Lotus, which operates a chain of 1,800 supermarkets of various sizes in Thailand, launched a massive discount campaign, touting "the biggest price cuts in the past 20 years." Tesco Lotus stores started offering deep markdowns on perishable foods and many other items.
Big C, a major rival of Tesco Lotus, has followed suit in a move that reflects the plight of the country's retail industry due to a weak appetite for shopping among Thai consumers.
The country's economy is predicted to grow by around 3% in 2015, underperforming its estimated potential growth rate of 5% for the third year in a row.
The Thai economy is showing clear signs of having fallen into the so-called "middle-income trap," a situation where an emerging country loses growth momentum as it moves into the middle of the global economic table. Thailand appears to have veered off the growth track before it joins the ranks of industrial nations.
Japanese automakers, which collectively control 90% of the country's car market, have resigned themselves to the new reality of slower growth and weaker consumer spending.
New vehicle sales in Thailand posted an on-year decline for 27 straight months through July. Carmakers originally expected sales for the entire year to notch up a rise, but now they are unlikely to reach even 800,000 units, which is 10% less than the figure for 2014, according to Kyoichi Tanada, Toyota Motor's managing officer.
Thai consumers have put away their wallets because they have saddled themselves with a huge amount of debt.
The previous government of former Prime Minister Yingluck Shinawatra adopted a set of policy measures to prod the people into spending, aiming to stoke economic growth while boosting its popularity in rural areas. Thai consumers, especially those in the countryside, responded by piling on debt to spend lavishly on a wide range of goods, from cars to electronics.
Thai households are now suffering badly from the hangover that is the result of the spending boom, with their collective debt load equivalent to 80% of gross domestic product. Debt-crippled consumers have no money to spend.
The Yingluck government was ousted in a military coup in May 2014. The country is led by a junta headed by former Army Gen. Prayuth Chan-ocha, now serving as prime minister.
The coup was supposed to bring stability to the country after months of political turmoil due to bitter conflict between supporters and opponents of former Prime Minister Thaksin Shinawatra, Yingluck's elder brother.
But a bomb attack in Bangkok on Aug. 17, which killed 20 people, has raised fresh concerns about public security and delivered a heavy blow to the nation's tourism industry, one of the few business sectors still in good shape.
Any serious damage to the tourism sector, which, including related businesses, accounts for 20% of the nation's GDP, has dire consequences for the entire economy. The Thai government is acting swiftly to limit the blow to the country's reputation for its political stability and gentle people, which is vital for the health of the travel industry.
On a roll since '97
Following the 1997 Asian currency crisis, a financial tsunami that started in Thailand and engulfed much of East Asia, the nation's economy recovered relatively quickly thanks to a cheap baht that powered export growth.
In 2000, Thailand eased restrictions on foreign companies' entry into its manufacturing sector, allowing overseas businesses to start operations on their own without forming a joint venture with a local partner.
The deregulation, coupled with a stable security situation, triggered a wave of foreign direct investment in the country. Huge investments by large foreign manufacturers, especially Japanese automakers, turned Thailand into a manufacturing hub in the region and catapulted it into the ranks of middle-income countries.
The development of manufacturing industries in neighboring countries, however, has created challenges for the Thai economy. Increased regional competition has put strong pressure on its manufacturing sector to improve labor productivity and shift its industrial structure toward the production of high-value-added products.
Attempting to upshift
These challenges have prompted the Thai government to embark on a broad slate of structural reforms designed to ensure sustained economic growth and boost the international competitiveness of key industries.
In July, Prayuth pledged to take steps to raise the nation's spending on research and development to 1% of GDP, from 0.45% in 2014. The move is aimed at helping the country's industries climb the technology ladder by pushing up research and development spending in terms of the percentage of GDP to the levels of Japan and Singapore.
The Thai government is also stepping up its efforts to attract foreign investment, targeting such high-tech areas as the manufacturing of electric vehicles, aircraft and bio fuels.
Some Thai companies are also beginning to make strategic moves to help upgrade the country's industries.
In May, state-owned oil and gas company PTT, the largest Thai business entity in terms of market value, opened an academic complex in Rayong, a province in central Thailand, featuring a high school and university that focus on scientific subjects. The company spent 5 billion baht ($141 million) to build the complex, with the intention to become a center for cooperation between industry and academia in the future. PTT is calling on other Thai companies to invest and join in the project.
Due to the aging of its society amid low birthrates, Thailand's working population will start shrinking sometime between 2015 and 2020, according to an estimate by the United Nations. Expanding per capita added value is crucial for the country's sustained economic growth.
Whether Thailand can revitalize its economic growth out of the middle-income trap or not depends on the effectiveness of the efforts by the government and the private sector to advance the country's industrial evolution.