Key policies by the government will support domestic demand over the next 12 months
New policies introduced by the government will have major implications for B2C and B2G firms and companies with large operations in Thailand. B2C firms should expect consumer spending, especially on non-durable goods and services, to remain strong in the coming months due to government efforts to keep inflation under control, boost consumer sentiment, and attract more tourists from key markets. They should also capitalize on the likely increase in spending in Q2 2024 once the government rolls out its digital cash handout scheme. Meanwhile, B2G firms should capitalize on a major rise in spending next year by the government; however, they should account for a delay in this spending until Q2 2024. Firms with large operations in Thailand should also prepare for labor costs to increase quickly over the next couple of years, as the government will aggressively raise the minimum wage, putting pressure on bottom-line growth.
Overview
The new government, led by PM Srettha Thavisin, has announced various measures to accelerate economic growth in the near term:
- Thailand is providing a temporary 30-day visa waiver for Chinese and Kazakh tourists from September 25, 2023 to February 29, 2024, and for Indian and Taiwanese tourists from November 10, 2023 until May 10, 2024 to boost the tourism sector.
- The government plans to raise the daily minimum wage over the next couple of years by a cumulative 19% to THB 400, with the first hike to be announced by the end of 2023.
- The government is moving forward with its flagship digital cash handout scheme. The total amount dispersed will be lower than the ambitious US$ 15 billion originally proposed; however, it will likely still be sizable.
- The new Thai cabinet approved a THB 3.5 trillion (US$ 96.3 billion) budget for 2024, 9.3% higher than the 2023 budget, with investment projected to make up 20.6% of total expenditure. However, the budget will not be finalized before Q2 2024, well after the start of fiscal year 2024 due to a delay in the government formation process.
- The government is keeping inflation in check by reducing the electricity tariff and implementing a diesel tax cut through 2023, as well as restricting sugar exports. It will likely continue to provide subsidy support in 2024 if inflationary pressures persist in Thailand.
Our View
Various measures by the new government will help accelerate economic growth in Thailand, which has been lackluster for the last three and a half years. The visa-waiver program will provide a much-needed boost to the tourism sector, which is not back to pre-pandemic levels. Government measures to strengthen spending power, particularly of low-income groups, will support consumption activity next year. Public investment will pick up in 2024, as the government will spend heavily on infrastructure under the 2024 budget; however, firms should note that private investment will remain weak due to persistent weakness in export-oriented manufacturing activity.
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