Baht is down against the dollar but what may take Thailand’s leadership by surprise is both the perception of the election result outside the kingdom and the views of young voters among the over 14 million citizens who came out in force to propel the Move Forward Party to the top of Thai politics.

Thai officials and policymakers may be underestimating the negative impact that any potential political turmoil may have on the country’s economy this year or even the potential of a downturn in foreign tourism if the proposed Move Forward Pheu Thai coalition government, which is seen internationally as the will of the people in the May 14th General Election, is thwarted or forced out of the running by a political surprise. The baht has already lost 3.3% against the dollar since the mid-May election and international media coverage of the kingdom has focused on the youth and appeal of what they see as Thailand’s charismatic PM in waiting, Pita Limjaroenrat, the youngest in over 78 years.

Foreign credit and market analysts assume that the coalition government led by Move Forward Party leader 43-year-old Mr Pita Limjaroenrat will come to power smoothly in August, given the potential for political instability and economic consequences if this does not happen. It comes with Thai exports in freefall and the country’s manufacturers nervous about the policies to be pursued by the new administration.

Thailand, on Tuesday, posted disappointing figures for April’s export volume with shipments down 7.6% on last month’s figures while falling 7.3% compared to this time last year.

The bad news for the country’s manufacturing and export sector comes amid rising fears of potential instability with tensions within the eight-party coalition trying to form a new government led by 43-year-old Move Forward Party leader Pita Limjaroenrat in the face of threats to his future in politics as the Election Commission carries out an intensive probe into a media shareholding held by Mr Pita in a defunct firm as part of his duties as executor of his father’s estate before the 2019 General Election.

Thailand’s exports falling faster than had been thought while the costs for manufacturers are going up, it’s not looking good despite buoyant tourism

The figures released on Tuesday show a 5.2% decline in exports from the start of 2023 combined with a 2.2% fall in imports giving the country a total trade deficit of $4.52 billion for the opening four months of 2023.

The deficit, however, has been offset by $11.1 billion in revenues earned with the government confirming the arrival of 8.6 million foreign tourists in the same period.

Government spokesperson Ms Trisulee Traisanakul told reporters this week that most tourist arrivals in Thailand were now coming from Asia including Indian and Malaysian holidaymakers.

Kasikorn Bank, one of the kingdom’s largest retail banks, suggests that the Thai economy is still poised to record a 3.7% rate of growth in 2023 with the Thai National Shippers’ Council and the Ministry of Commerce continuing to insist the country’s export industry will improve and exceed 2022 levels by between 1% and 2%.

Weak demand from the United States, it also appears that the malaise in China is deeper than most people thought with a slower-than-expected recovery

The prediction comes despite reports of weak demand from Thailand’s key export markets, the United States where the economy is beginning to feel the effects of continuous interest rate rises from the Federal Reserve while China’s economic malaise appears more permanent than most analysts are open to admitting as its economy has not rebounded as expected following its reopening earlier in the year.

Thai exporters are consistently reporting sluggish demand from China even though the communist country reported a solid 4.5% GDP growth in its first three months of 2023.

Preserving stability must be the priority now for the government says the Bank of Thailand boss as concerns grow over General Election populist policies
Election vote for Move Forward may have been a cry for help from voters mired in short-term debt

In the United States, the Federal Reserve is expected to raise interest rates at least twice more between now and the end of 2023 with the current baseline borrowing rate of 5% to 5.25%.

Bank of Thailand is expected to pause further interest rate hikes after a May rise of 25 points given the fragility of the kingdom’s economy and recovery

Thailand’s interest rate is currently at 1.75% with a further rate hike due on Wednesday bringing it to 2% but, after this, many analysts suggest that the Bank of Thailand will hold the borrowing rate fearing that a rapid rise will generate higher costs for the heavily borrowed business sector as well households in debt, feeding into potential financial instability.

Before the election, in a polite intervention, the Bank of Thailand Governor Sethaput Suthiwartnarueput emphasised the importance to the Thai economy of economic and fiscal stability at this time even over plans to boost consumer spending being advanced by the parties currently trying to form a government.

The bank has, however, let it be known that it plans to support the new government’s policies if it comes to power in August.

This week, the Ministry of Commerce cited its plans to boost the promotion of Thailand’s exports abroad in the latter half of the year and some encouraging signs from new markets such as South America in response to the dismal performance for April.

Baht to remain weakened until August when Western analysts are assuming, perhaps wrongly, that the current proposed coalition will come to power 

The Thai baht has fallen by over 3.3% since the May 14th General Election and is expected to remain weak or volatile until a new government is formed in August.

‘Domestic politics is a risk factor that could trigger baht fluctuation against the dollar,’ explained Kobsit Silpachai, Chief of Kasikorn’s Capital Market Research Department. ‘Investors are concerned about the formation of the new coalition government amid uncertainty following the general election.’

Move Forward Party’s good election result leaves uncertainty as to who will form the next government

Business leaders are nervous in any event given the scenarios playing out before them right now with rumours of an alternative coalition being the subject of secret talks including the Pheu Thai Party, Bhumjaithai Party, Democrat Party and others replacing the eight-party coalition as the two leading parties appear to be facing ongoing tensions.

There are also growing signals that the Election Commission, under its extraordinary powers granted to it by the kingdom’s political laws, may well move against Move Forward’s Pita Limjaroenrat who is already seen widely by the younger population as the next Prime Minister, the youngest for over 78 years in Thailand.

International coverage of Pita Limjaroenrat portrays him as Thailand’s Prime Minister-elect and financial analysts wrongly assume he will come to power

Media coverage since the election including profiles of Mr Pita Limjaroenrat on influential international media outlets such as the New York Times and the BBC has hailed Mr Pita as the face of a new, more progressive and democratic Thailand, a triumph of democracy over authoritarianism which is the world’s key new dividing line.

The election result was a big surprise to Thailand’s establishment and political leadership with many young people among the over 14 million or nearly 40% of the electorate who pushed Move Forward to the top of Thailand’s political pile.

Bhumjaithai and Palang Pracharat won 27% of constituency seats only polling 4% in the party list vote

Even with nearly 40% of the vote in the party list ballot, Move Forward took just 30% of seats but managed to form a coalition with 62% of MPs elected to the House of Representatives.

By comparison, the Bhumjaithai Party only polled just over 3% or 1 million voters in the party list ballot and managed to secure 14.2% of the seats, overall, in the House of Representatives.  

Removal of Pita will come with a heavy price

The potential disqualification of Pita Limjaroenrat from politics, if it comes, will likely see unprecedented street protests in the kingdom.

For younger voters who support Mr Pita, this will be interpreted as the political mechanisms created by the 2014 coup, disrupting the will of the electorate who have already made their views known concerning the current quasi-democratic constitutional provisions which are policed by powerful state agencies which have intervened regularly and decisively over the past two decades to initiate proceedings which have removed popularly elected political leaders from the public sphere, something that does not happen in fully democratic countries.

Most Western analysts such as the Fitch Ratings firm Credit Sights are assuming a smooth transition to power for the new Move Forward-led coalition in August this year.

Western tourists and travel firms are operating in a new political world after the Russian-Ukraine war where democratic values are no longer negotiable

Some travel sources are even speculating that the removal of what the world sees as Thailand’s democratically elected Prime Minister-elect under legal provisions installed by the former junta may lead to a boycott of Thailand as a tourist destination as holidaymakers, at least from Western markets, may react negatively, first of all on fears of potential political instability but also on a matter of political principle in a world which has changed fundamentally since the start of Russia’s invasion of Ukraine in February 2024 where political values are now seen by many western voters and consumers as matters that should have economic consequences.

In the days after the election, Credit Sights defined the election result as a rejection of the quasi-democratic regime installed by post-coup governments since 2006 and accepted that if the popular will of the public is not upheld, there will be political turmoil in Thailand.

‘Ruling out a military coup by the Thai army chief in the event of post-election turmoil supports our base case of a smooth transition of power,’ declared the firm last week.

Most analysts have also made it clear that even the threat of political turmoil will impact the foreign tourist recovery.

Credit Sights is no different and even suggests that such turmoil may be continued over an indefinite period.

‘Failure to form a government with an MFP leader will lead to street protests that will affect the tourism rebound, potentially continuing for an indefinite period of time,’ a note for the firm read this week.

Kasikorn bullish this week projecting 3.7% growth and 28.5 million foreign tourists by the end of 2023

Kasikorn Bank is predicting 28.5 million visitors in 2023 as part of its 3.7% growth projection while the National Economic and Social Development Council (NESDC) is currently only pencilling in a growth rate of 2.7%.

The Fitch Ratings firm’s analysis of the Thai economy however was positive about the prospects for a Move Forward Pheu Thai government pointing to an emphasis on pushing growth and raising living standards.

‘From a banking system perspective, the pro-growth policies of the winning parties and the absence of protests will be helpful for loan growth, fee income and asset quality, while populist proposals and campaign pledges such as cash handouts and doubling of the minimum wage will also deliver a spending boost to the economy’ the firm stated.

Thai business leaders and industry have problems with the Move Forward Party’s radical plan to raise the minimum wage to ฿450 within the first 100 days

Meanwhile, amid Tuesday’s disappointing news from the Commerce Ministry on exports which far exceeded a 2% decline projected by a Reuters poll, Mr Poj Aramwatananon, the Deputy Chairman of the Thai Chamber of Commerce warned that manufacturers were now far more worried by rising costs of production in Thailand including the emphatic line taken by the Move Forward Party with its plans to immediately jack up the minimum wage rate to ฿450 per day in its fits 100 days in office.

Move Forward’s ฿450 minimum wage in 100 days seen as an earthquake moment for Thai factories

Thailand, despite having electricity per unit cost at nearly twice that of Vietnam, has managed to compete on labour costs with an effective rate per day of ฿293 despite a ฿350 minimum rate agreed upon and implemented last year with the Ministry of Labour in some provinces.

This is compared to ฿193 in Vietnam and ฿275 in Malaysia but is marginally lower than the ฿307 in Indonesia and ฿308 in the Philippines.

The proposed ฿450 minimum daily wage rate would firmly and promptly leave the country with no way to compete with its aggressive regional competitors who have younger and more educated populations as well as better market access across the world, key structural issues that the new government programme is pledged to address.

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Further reading:

Move Forward’s ฿450 minimum wage in 100 days seen as an earthquake moment for Thai factories

Election vote for Move Forward may have been a cry for help from voters mired in short-term debt

Pita, Move Forward and five other parties meet in Bangkok and come out smiling, ready to govern

Pita plots a new coalition government with Pheu Thai but open conflict has already raised its head in the Senate

Move Forward Party’s good election result leaves uncertainty as to who will form the government

Move Forward leader denies claims he held shares in media company barring him as a Bangkok MP

Move Forward Party surging in the polls as the General Election campaign enters its final week

PM warns giveaway policies of some parties may be ‘bad karma’ for the country in the longer run

Leader of PM’s UTN tells rally a government led by his party will ‘get tough’ with nation haters

Deputy Prime Minister Prawit Wongsuwan warns that those in power who support coups still exist

Ung Ing says Prawit is better liked than PM Prayut with reports of the return of key ex-ministers