Thai GDP growth at risk as new government formation faces delays

Concerns are rising within the private sector as the potential delay in the formation of Thailand’s new government could lead to a decline in the country’s GDP growth to 1-2%. Kriengkrai Thiennukul, chairman of the Federation of Thai Industries, stated that the Joint Standing Committee on Commerce, Industry and Banking (JSCCIB) is closely monitoring the political situation.

A new government established by August could boost confidence among Thai citizens, business operators, and both local and foreign investors. However, a delay of 1-3 months in the formation of the new government could negatively affect business and investor confidence, Kriengkrai warned.

“If the new government formation is delayed and leads to demonstrations, it would impact the confidence of investors and travellers. In this scenario, it could seriously damage the Thai economy, cutting the Thai GDP growth rate to 1-2%.”

The Thai Bankers’ Association (TBA) chairman, Payong Srivanich, explained that the panel anticipates the inflation rate to rise by 0.82% if the new government increases the daily minimum wage to 450 baht, as pledged by the Move Forward Party. Every 10% minimum wage hike raises inflation by 0.3%, according to the TBA.

Higher inflation projections could affect consumer purchasing power and increase costs for business operators. However, Payong noted that the business impact would also rely on improving labour skills and productivity within the private sector.

The JSCCIB predicts inflation of 2.7-3.2% and Thai GDP growth of 3-3.5% for 2023, primarily driven by the recovery of tourism and improvements in domestic consumption. Exports are expected to remain flat or decline by 1% this year, in line with the global economic slowdown. Meanwhile, 30 million foreign tourists are anticipated to visit Thailand in 2023.

The panel highlighted that the global economy is set to slow this year more than previously projected, as China lags in both the services and manufacturing sectors. Payong also mentioned that rising interest rates would affect small and medium-sized enterprises (SMEs), which is a vulnerable segment.

The Bank of Thailand is expected to continue monitoring SME customers’ debt repayment abilities, offering them financial assistance in accordance with client demands, according to the JSCCIB. Payong said…

“Given the higher costs, rising interest rates would affect the household sector more than business. Demand for consumer loans, especially mortgages and housing loans, have been slowing as living costs increase.”