Political risks threaten foreign investment in Thailand

Siam Commercial Bank (SCB) EIC Research Centre warns that heightened political risks are casting a shadow over foreign investment in Thailand’s financial, capital, and long-term direct investment markets

EIC Chief Economist Somprawin Manprasert warned that various political risks and uncertainties could significantly impact foreign investor confidence and lead to substantial capital outflows from offshore investors in the Thai equity market.

He noted that these internal political issues might affect the government’s economic policies, creating greater uncertainties and diminishing business sector confidence.

EIC anticipates that the Bank of Thailand will start reducing its policy rate in the fourth quarter of this year, lowering it by 25 basis points to 2.25%, with a further reduction to 2% expected early next year. Somprawin indicated that this forecast is supported by upcoming economic stimulus measures.

The research unit revised its Thai GDP growth forecast for 2024 downward to 2.5% from the previous 3%. The primary drivers of growth will be the service sector and a significant rebound in foreign tourist arrivals. Meanwhile, the Thai GDP growth next year is predicted to be 2.7%.

Additionally, EIC has adjusted its projections for several economic indicators for this year. Government consumption growth is expected to drop from 3.3% to 1.4%, private investment growth from 4.4% to 3.6%, public investment growth from 2.2% to a contraction of 0.5%, and export growth from 3.7% to 2.6%.

Somprawin pointed out structural challenges for Thai economic growth. Economic fundamentals are under pressure from various factors, including limited merchandise export growth, partly due to a weakened Thai export recovery and global trade volumes, with expected declines in shipments of steel, fruit, and hard disk drives this year. However, he predicts moderate GDP growth in the second half of the year.

“Thai GDP growth is expected to rebound in the second quarter this year, quarter-on-quarter. However, growth is anticipated to moderate in the second half of the year relative to the first, placing pressure on private consumption because of increased vulnerability in the household sector.”

The manufacturing sector is gradually rebounding amidst external pressures from increased competition with Chinese imports, driven by overcapacity in China, and internal pressures from a slowdown in domestic demand, reported Bangkok Post.

The EIC reported that despite an accelerated disbursement of public investment spending following a delay of more than six months in passing the 2024 budget bill, it is unlikely to fully offset the contraction seen in the first four months of this year.