How the Thai economy is affected by delay in forming new govt

If the political situation remains stable, the Thai economy is expected to continue moving forward for the remaining part of this year. The economy has shown signs of improvement moving into the second half of the year, and GDP growth is projected to be at least 3% for the whole year. On the flip side, prolonged political uncertainty may affect the economy and international confidence next year.

As the political temperature rises while we await the formation of a new government following May’s election, many are concerned that the transition period could hit the economy and international confidence, especially if there are prolonged uncertainties. This is evident in the net foreign capital outflows from the Stock Exchange of Thailand since early this year, with the SET index dropping continuously and breaching the support level of 1,500 points – its lowest since April 2021. Daily trading value has also declined to only 30-40 billion baht, compared with hundreds of billions of baht previously. In the first half of 2023, net foreign fund outflows from the Thai stock market exceeded hundreds of billions of baht, wiping 10% off the net value of Thai shares and making them the third-worst performers in the world.

The continuous foreign selloff is partly due to fundamental factors in Thailand that were relatively vulnerable even before the Covid-19 situation. The Thai economy has expanded at an average rate of 3-4% per year for nearly a decade, compared with growth rates of 5-7% in newly developed countries. Moreover, Thai stocks have been performing less well than their regional counterparts.

Nevertheless, economic indicators for Thailand in June this year show the economy is still on a recovery path, consistent with the International Monetary Fund (IMF)’s recent projection of 3.4% growth this year. In early July, the Asian Development Bank (ADB) upped its estimate for Thailand's economic growth in 2023 from 3.3% to 3.5% – the biggest revision for any country in the region.

In summary, the Thai economy remains on the recovery path, but the situation warrants careful observation, especially regarding the political landscape and its potential impact on investor confidence, foreign capital flows, and the overall economic outlook for the country.

Naris Sathapholdeja, head of TTB Analytics of TMB Thanachart Bank (TTB).