Limited impact expected from new government’s stimulus amid political uncertainty

Political parties at a meeting of coalition parties in Bangkok, Image via LinkedIn

The impact of the new government‘s stimulus measures on the economy is expected to be minimal, as the stock market has already accounted for risks associated with political issues, according to the SCB Chief Investment Office (SCB CIO).

Kampon Adireksombat, first senior vice-president and head of SCB CIO, stated that the formation of a new coalition government is still uncertain and could take longer than usual, as appointing a prime minister requires at least 376 votes combined from the House of Representatives and Senate.

He said…

“The Thai economy is trying to recover during this political process.”

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In the first quarter, the economy experienced a 2.7% year-on-year growth, compared to 1.4% in the fourth quarter of last year. Supported by a strong recovery in private consumption and tourism, the economy expanded by 1.9% on a seasonally adjusted quarter-on-quarter basis, compared to a contraction of 1.1% in the fourth quarter of 2022.

Kampon added…

“The likelihood of the economy entering a technical recession has significantly decreased,”

He continued, “While specific details regarding the new government’s economic stimulus measures remain sparse, their potential impact on the economy is expected to be less significant than those announced earlier, primarily due to the existing high public debt-to-GDP ratio that leaves limited fiscal space available for additional stimulus.”

Household debt is currently at a significant 87% of GDP, further restricting lending activity in the financial sector as caution prevails.

The Thai stock market has successfully recovered from an earnings recession, which refers to a period when listed companies experience two consecutive quarters of profit contraction compared to the corresponding period of the previous year.

“The current market index is believed to have already factored in potential risks related to political issues. Investors are advised to consider accumulating stocks in sectors such as tourism, consumer goods, and hospitals, which have demonstrated robust performance and continue to exhibit signs of recovery,” Kampon said.

He also noted that while the US public debt ceiling issue has the potential to cause volatility in the global financial market, it is expected that this matter will primarily affect the US economy in the short term.

Kampon stated…

“It is anticipated a bill to increase the debt ceiling will ultimately pass Congress,”

If a consensus cannot be reached before the deadline, Congress may pass a law to slightly increase the debt ceiling or temporarily postpone the debt ceiling until September 30, potentially in conjunction with the spending plan for fiscal 2024, reports Bangkok Post.

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