June 19, 2023
BANGKOK – Economists are worried about the uncertain political situation, saying it could well hinder the timely formation of a government, which could in turn impact investor confidence and budget disbursement, and potentially lead to protests that could affect the tourism sector, a major driver of the economy.
According to Pipat Luangnarumitchai, managing director of Kiatnakin Phatra Financial Business Group, the Thai economy is showing signs of recovery, primarily driven by the tourism sector, which is expected to welcome 30 million foreign tourists. This influx is expected to help revive the tourism sector, but even so, the Thai economy is still recovering slowly compared to other countries that also experienced three years of Covid shutdowns.
Gross domestic product (GDP) has not yet fully returned to pre-pandemic levels, while consumer recovery is declining due to rising interest rates and income issues. Furthermore, export performance is predicted to be negative this year. The most significant risk to Thailand’s economic recovery is a potential problem in the tourism sector, which must be managed without any significant impact.
Somprawin Manprasert, head of Siam Commercial Bank’s Economic Intelligence Centre, and Kirida Bhaopichitr of the Thailand Development Research Institute (TDRI), believe that the Thai economy can still grow by 3.5% this year backed by private consumption, the tourism sector, and service sector recovery, despite the ongoing decline in exports. They noted that although Thailand may benefit from the opening of the Chinese economy, risks are still being posted by the declining economic conditions of major export markets.
Public debt is increasing in every scenario of the formation of a new government, due to expenditure driven by populist policies and the pressure to spend on an ageing society. This highlights the necessity of fiscal reform to ensure sustainable public finances.
Meanwhile, the political situation, which still lacks stability, may delay the formation of a government, resulting in the budget for fiscal year 2023 being delayed. This would prevent an increase in government spending this year, affecting investors’ confidence. Additionally, the issue of raising the minimum wage as proposed by the Move Forward Party will increase business operations costs and while it would boost workers’ income, it could also push inflation up.