The prospects of a speedier formation of a new government with parliament now convening on July 3rd holds out hope to the business sector that a disastrous political crisis may be avoided with a new government formed and in place by July 21st. It follows a week in which there appears to be a new impetus coming from authorities to speed up the process.
As news emerged on Wednesday that a new government could be in place in July and not August as previously envisaged, a senior economist at Siam Commercial Bank has singled out the formation of a new government with a new Prime Minister without a political accident or stalemate developing as critical to the country’s economy this year which could grow by up to 4% driven by a rebounding foreign tourism industry and younger Asian travellers with stronger consumer confidence as a result.
On Wednesday, the caretaker government’s legal expert Deputy Prime Minister Wissanu Krea-ngam outlined a speeded-up schedule which will see parliament meet earlier than anticipated in July and a new government put in place within the month.
This comes days after a senior economic analyst with Siam Commercial Bank remained upbeat about Thailand’s GDP growth projection for 2023 coming in at 3.99%, ahead of last year’s 2.6% level and following a 1.5% rise in 2021.
Quick and smooth transition to a new Move Forward led government in July a turning point for the economy says Siam Commercial Bank analyst
The briefing by Ms Thitima Chucherd, Director of the Economic Research Department and financial markets for the bank comes despite the bank’s research unit reducing its outlook for the world economy in 2023 from 2.3% growth to 2.1%.
The bank economist highlighted the importance at this time of a quick transition to a new government as Mr Wissanu confirmed that parliament will convene earlier than thought on Monday, July 3rd with a new prime minister to be elected by a joint sitting of both houses on July 13th and a new cabinet sworn in on July 21st.
This week, there appears to be a renewed sense of urgency as the Election Commission, in an about turn, approved all 500 MPs provisionally elected in the May 14th General Election.
3.99% growth projection is higher than the Fiscal Policy Office and contrasts with a more downbeat assessment last Friday by the Minister of Finance
This projected growth figure from Ms Thitmas compares with a downbeat assessment from Minister of Finance Arkhom Termpittayapaisith who was speaking last Friday at a conference organised by the Security Exchange Commission.
Mr Arkhom said that Thailand will experience another year of slow growth in 2023 although he pointed out that growth rates in Asia were likely to be higher than in developed countries.
In contrast to the Siam Commercial Bank outlook, he referred to a recent report by the Organisation for Economic Co-operation and Development (OECD) which suggested the outlook for the global economy was improving somewhat although analysts are increasingly concerned about reports from China where unemployment among young people has risen to an unprecedented 20% and business confidence is plummeting despite the prospect of lower interest rates being held out as central planners try desperately to bail out a slumping economy.
Minister accepted that exports will decline this year but held out the prospect of higher earnings because of a relatively stronger Thai baht in 2023
Mr Arkhom is the first senior government official this year to admit that it is now likely that the kingdom’s exports will fall for 2023 although he suggested that the final figures may be financially higher due to the appreciation of the Thai baht compared to the average figure for the currency last year.
The Fiscal Policy Office of the Ministry of Finance is now pencilling in a growth rate of 3.6% for 2023 with a 0.5% fall in exports.
Last year, Thailand recorded a 5.5% increase in exports although, from the last quarter of 2022, exports have dived.
Figures just released by the Ministry of Commerce for April showed that exports fell 7.6% year on year with output coming in at $21.7 billion while imports decreased by 7.3% to $23.7 billion leaving the country with a trade deficit for the month of $1.47 billion.
Despite this, the country’s current account for April had a surplus of $4.8 billion driven by capital inflows and foreign exchange gains in part because of the still recovering foreign tourism industry with Thailand on target to welcome somewhere between 25 million and 30 million foreign tourists this year.
Thailand’s foreign tourism recovery this year is being driven by younger travellers from Asia spending 5% less than the average visitors did in 2019
Many of these tourists, according to information released by the government, are originating in Asia and strikingly, are from younger adult age groups with an average foreign tourist spend of ฿48,000 which is down 5% approximately on the spend per tourist in 2019, Thailand’s record year for attracting foreign holidaymakers when 39.8 million visitors entered the country with 28% of these coming from China.
This year, the figure will be less than that with 5 million Chinese visitors expected or 15% to 20% of the total.
On Monday, Siam Commercial Bank analyst Ms Thitima highlighted foreign tourism as a key driver of the 3.99% GDP growth projected by the bank’s research unit.
This is based on Thailand welcoming 30 million visitors and generating an income of ฿1.27 trillion for 2023.
She pointed out that the foreign tourism business was currently responsible for driving consumer confidence in the country and a tightening labour market.
Business confidence however is declining
Despite this, economic confidence is low in the business sector with many private firms suffering from high levels of debt while household borrowing, particularly in the car loan sector, is starting to veer towards higher levels of bad debt or non-responsive loans.
The kingdom’s manufacturing sector has fallen on hard times since the last quarter of 2022 and is being hit by rising bank interest rates with the Bank of Thailand now predicted to raise interest rates twice before the end of 2023 bringing the borrowing rate to 2.5%, well below regional peers and the rate in the United States which is now being held at somewhere between 5% and 5.25%.
The reticence of the Bank of Thailand to raise rates higher can be seen as a tacit acknowledgement of the frailty of the economic recovery and the potential impact higher rates would have on businesses and over-borrowed households.
In addition to these problems, the Siam Commercial Bank unit is highlighting the danger of prolonged political uncertainty and the potential damage of a political stalemate or the possibility of a crisis emerging next month with the combined parliamentary session of the House of Representatives and the Thai Senate meeting on July 13th to elect Thailand’s next prime minister.
Multiple factors to negatively impact economic growth even if a new government is formed in July
Even if a government is formed in July, there is also a danger of delayed disbursement of the country’s budget and government expenditure which is a key economic driver in the country.
There is also concern over a threatened drought which could impact agricultural output towards the end of the year as the kingdom has been suffering from higher-than-normal temperatures caused by both climate change and the El Niño phenomenon.
Inflation in Thailand has moderated in 2023 and is currently running at 2.1% within the Bank of Thailand’s targeted range of 1.7% to 2.7%.
This comes despite a spike in electricity prices since the end of the year which has hit both households and businesses hard.
New ฿450 a day Move Forward minimum wage not popular with manufacturing business concerns but a delayed government or political crisis is feared more
There are also fears that a Move Forward-led government formed in July, with its commitment to a ฿450 daily minimum wage within 100 days, if implemented, could add a further 0.6% to the inflation rate leading the kingdom to a potential inflation figure of 2.5% for the year although this would still be within the targeted spectrum.
The policy has been criticised by the business sector who warn that it will further erode the country’s cost-effectiveness or competitiveness in attracting foreign investment.
However, the threat of a political crisis and instability is a far more dangerous prospect as it would undermine both inward tourism and capital flows.
The Move Forward minimum wage policy, of course, may also provide a shot in the arm for the domestic economy and further boost consumer confidence.
Business leaders, however, are warning that the biggest threat to the economy right now comes from the political arena and the potential failure of Parliament to elect a new prime minister in July.
There is also deep unease over potential challenges before the Constitutional Court relating to any future government’s leadership which could threaten its stability in the coming six months.
‘ I would like the new government to be established soon. It will allow for various policies and create momentum within the business sector which needs clarity to build confidence in new investment. The inability to form a government and not meet the expectations of the people who want to see the government come to power is critical. People want to see the country get better,’ Siam Commercial Bank’s Ms Thutmas declared.