Subdued inflation and strong domestic demand will support faster economic growth this year (Thailand’s political environment)

While the political environment will likely remain turbulent in the coming weeks, the economy will see faster growth in 2023 compared to 2022

Due to major political volatility in Thailand, foreign investors looking to expand their footprint in the country will likely be in a wait-and-see mode in the coming months. Protests in Bangkok, which are expected to escalate nationwide due to the military’s opposition to the democratically elected coalition, will disrupt firms’ operations and negatively impact the tourism sector. These challenges will be particularly acute in Bangkok, where protests are expected to be the most severe.  

Despite these major short-term disruptions in the market, Thailand is poised to offer attractive growth prospects for both B2B and B2C firms over the next 12 months. The country’s economy will benefit from a notable decrease in inflation and a positive shift in consumer sentiment, leading to increased consumption among low- and middle-income individuals. Moreover, high-income consumers will likely spend heavily, especially on services and non-durable goods. With a surge in domestic demand and easing cost pressures, the manufacturing sector is also projected to surpass pre-pandemic levels and see substantial growth.


On July 13, the parliament convened to select the new prime minister, approximately two months after the elections took place. The leader of the winning democratic coalition, Pita Limjaroenrat, was unsuccessful in his bid to become PM, as he lacked the support of Thailand’s military establishment. Pita was initially scheduled to stand in a second vote on July 19; however, the parliament decided that Pita cannot be nominated again. The parliament is scheduled to reconvene on July 27 to determine the country’s PM. While the government formation process continues, the Move Forward Party (MFP) also faces the distinct risk of disqualification due to a recent legal case filed against the party regarding its proposed changes to the royal defamation law.

Despite the prevailing political volatility, Thailand has experienced significant improvements in its macroeconomic conditions in recent months. Notably, inflation has exhibited a sharp deceleration, dropping from an average of 3.9% YOY in Q1 2023 to 1.1% YOY in Q2 2023. Moreover, consumer confidence has been on the rise for 13 consecutive months, reaching a three-year high of 56.7 in June. Additionally, the unemployment rate fell to a three-year low of 1.1% in Q1 2023, as economic activity continued to pick up in Thailand. 

Our View

The political landscape in Thailand will likely remain uncertain in the upcoming weeks, as a power struggle persists between the pro-democracy faction and the military government. Pita’s aspirations to become Thailand’s next prime minister are over now. Due to the parliament’s decision to block Pita’s nomination, protests will intensify quickly in the coming days, especially in the capital city of Bangkok. The Pheu Thai Party (PTP), which won the second most seats in elections, will now likely put forth a prime ministerial candidate. However, it remains uncertain whether it will maintain its alliance with the MFP or establish a new coalition due to the military’s opposition to the MFP. If the PTP stays with the MFP, there is a distinct risk of disqualification due to the ongoing case against the MFP in the Constitutional Court. Despite these political hurdles, the Thai economy is anticipated to achieve faster growth this year compared to the previous year. A continued decline in commodity prices, especially for fuel and food, will bolster domestic demand in the coming months. Manufacturing activity will also continue to rise, supported by low inflation, and a recovery in export demand from China. However, the tourism sector is likely to experience slower growth in the third quarter of 2023 due to large-scale protests. Nevertheless, there is a distinct likelihood now that the democratic PTP will successfully form a government, which could help temper the protests in Q4 and lead to a faster recovery of the tourism sector. We forecast Thailand’s GDP to grow by 3.0% YOY in 2023 compared to a historical 2.6% YOY in 2022.

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