Thailand: Coalition delays seen as threat to growth

The private sector is concerned that Thai GDP growth could decline to 1-2% if the formation of the new government is delayed from the timeline by six months or more.

Kriengkrai Thiennukul, chairman of the Federation of Thai Industries, said the Joint Standing Committee on Commerce, Industry and Banking (JSCCIB) is monitoring politics and awaiting a new government.

If the new government can be set up by August, it would bolster confidence among Thais, business operators, and local and foreign investors, said Mr Kriengkrai.

However, if the new government formation is delayed for 1-3 months, it could dampen business and investor confidence, he said after the panel meeting on Wednesday.

If the delay is more than six months, it could impact foreign investment in Thailand, with overseas investors shifting their focus to regional competitors, said Mr Kriengkrai.

“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 GDP growth rate to 1-2%,” he said.

Thai Bankers’ Association (TBA) chairman Payong Srivanich said the panel expects the inflation rate to rise 0.82% if the new government raises the daily minimum wage to 450 baht, a campaign pledge by the Move Forward Party.

Every 10% minimum wage hike raises inflation by 0.3%, said the TBA. If the new government increases the minimum wage to 450 baht, the inflation rate is expected to increase by 0.82%.

The higher inflation forecast would impact consumer purchasing power and increase costs for business operators, said Mr Payong. However, the business impact would also depend on improving labour skills and productivity in the private sector, he said.

The price of diesel is expected to gradually increase, following the termination of the diesel price subsidy next month.

The inflation rate has been declining to within the central bank’s target range of 1-3%, but core inflation has remained steady.

For 2023, the JSCCIB predicts inflation of 2.7-3.2% and Thai GDP growth of 3-3.5%, mainly driven by the tourism recovery and improvements in domestic consumption.

Exports are forecast to be flat or fall by 1% this year, in line with the global economic slowdown, while 30 million foreign tourists are expected to visit Thailand in 2023.

The global economy is poised to slow this year more than previously projected as China lags in both the services and manufacturing sectors, said the panel.

In addition, Mr Payong said rising interest rates would affect small and medium-sized enterprises (SMEs), which is a vulnerable segment.

The central bank is likely to continue policy rate hikes to curb inflation, particularly core inflation, he said.

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

The central bank has extended long-term debt restructuring measures, allowing banks to help customers ease their financial burden amid an uneven economic recovery, higher uncertainties and rising expenses.

“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,” Mr Payong said.