An improving political outlook will support the Thai economy in the coming months
Firms will benefit from a pickup in consumption and investment activity in H2 2023, supported by an improving political environment, as well as easing inflation and a continued tourism recovery. We expect GDP growth to average 3.3% YOY in H2 compared to 2.2% YOY in H1. The Thai baht will also strengthen, reducing import costs, which have been high in H1 2023. Moreover, the selection of the next government will allow the 2024 budget to be finalized in the coming weeks, providing more clarity on the government’s spending priorities for B2G firms. B2C firms will also benefit from a rise in tourist arrivals as protests begin to subside and Chinese tourists return in larger numbers.
The Pheu Thai Party (PTP), which will lead the new government, has stated some of the key policies that it plans to implement to boost economic growth during its tenure. Most notably, the PTP plans to provide large cash handouts to Thai citizens and raise the minimum wage, which will lead to stronger demand opportunities for B2C firms in the medium term. It also plans to resolve debt problems faced by farmers and small and midsize enterprises while providing access to funding at low interest rates, a move that will help to boost investment levels that have been slow to grow in the last couple of years. The PTP will likely be able to implement many of the proposed policies, as members of the PTP will take up key posts within the new government, including oversight of the finance ministry, which will allow the government to bolster growth through fiscal stimulus. Since conservative parties are still part of the new government, they will continue to influence Thailand’s policy orientation. However, their influence will be limited as compared to previous governments, because the government will be led by the democratic PTP.
Overview
- On August 7, the democratic PTP split from Pita Limjaroenrat’s Move Forward Party (MFP) and formed a new coalition that included conservative parties to increase its chances of forming the next government.
- On August 22, parliament elected the PTP’s Srettha Thavisin as the new prime minister of Thailand. Srettha reached a majority by securing 482 votes and substantial support from the military-appointed Senate.
- Thailand’s King Maha Vajiralongkorn approved Srettha’s appointment, putting an end to election proceedings that have been going on for three months.
Our View
The successful formation of the new government puts an end to the major political uncertainty that has plagued Thailand for the last three months. An improving political outlook coupled with low inflation and a likely faster recovery of the tourism sector in H2 compared to H1 will boost consumer spending in the coming months, particularly on non-durable goods and services. We forecast consumption to grow by 5.1% YOY in 2023. Investment activity, which weakened in Q2 in part due to major political uncertainty, will likely pick up as well, as a clearer picture of Thailand’s political and policy orientation will help firms decide whether to expand their manufacturing footprint in Thailand. Moreover, the Thai baht, which has been under depreciatory pressure in recent months due to rate hikes by the US Federal Reserve and political gridlock, will likely perform better through the rest of 2023. We expect the baht to trade at 34.6 against the USD by the end of 2023. Protests will continue to some degree in the coming weeks, because the military is still part of the new government. However, their scale will be much smaller compared to the protests in July and will likely subside before the end of Q3 2023. Fewer protests coupled with a likely faster return of Chinese tourists compared to H1 will provide a boost to the tourism sector.
Election proceedings over the last three months reflect the outsized power the military yields over the selection of the government. The military prevented the MFP, which won the most votes in the May 14 elections, from being part of the next government. Instead, it came to a compromise by forming an alliance with the PTP and will continue to exercise influence, albeit limited, over the government’s policies. The new alliance has also prompted Thaksin Shinawatra (founder of the PTP) to return from self-exile after 15 years. While Thaksin has begun serving an eight-year prison sentence, there is a distinct possibility that he will avoid a full sentence, allowing him to play a more influential role in Thai politics once again.
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