Maybank Securities analysts Lee Ju Ye and Chua Hak Bin have maintained their GDP growth forecast for Thailand at 4% this year, expecting the general election on May 14 to cause minimal disruption to the country’s tourism-led recovery. This is unless there is significant social unrest over a contentious election, as seen in 2014, the analysts add. During the 2013 and 2014 political crises, Thailand’s GDP growth slowed to 0.2% (from 4Q2013 to 2QFY2014) from 3.6% in the first nine months of 2013.
“Our base case is for a political transition which may delay budget approvals and government spending but has minimal impact on the return of foreign tourists,” the analysts add.
The past election cycles have generally been positive for the Thai stock market, boosted by expectations of economic stimulus measures to support the economy. The analysts note that over the past five elections since 2001, the Stock Exchange of Thailand (SET) index rose by an average of 3.4% three months before the elections, continuing to rise by an average of 5.3% one month after the elections.
Opposition in the lead
Thai Prime Minister Prayut Chan-o-cha dissolved the parliament on March 20. Campaigning is underway for an election that could end nearly nine years of military-led government.
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While the preliminary outcome of the vote will be available on the same night on May 14, official results may take around two months to finalise and will likely be announced only in early July, according to a timeline provided by the Thai government.
Opinion polls show that Pheu Thai’s 36-year-old Paetongtarn Shinawatra — former premier Thaksin Shinawatra’s youngest daughter — is the frontrunner for the top job. In the latest quarterly poll by the National Institute of Development Administration (NIDA) released in March, Paetongtarn’s approval jumped to 38.2% from 34% in December.
The Pheu Thai Party — the third incarnation of a political party founded by Thaksin — is leading in the polls, with a 49.8% approval rating among voters in the latest NIDA survey, followed by the Move Forward Party at 17.4% and Prayuth’s United Thai Nation Party at 11.8%.
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Maybank says voter turnout may be strong, given the active campaigning of political parties. Thailand’s voter turnout exceeded 70% since the 2007 elections, save for 2014 when the opposition boycotted the vote. The last election in 2019 saw a turnout of 74.7%. At least three million first-time voters will make up more than 5% of eligible voters who came of age during the student-led youth protest in 2020.
The competing parties are campaigning on populist policies, Maybank highlights. Key pledges include minimum wage hikes, benefits for welfare cardholders, and a farmers’ income boost.
There will be challenges to delivering populist policies in an environment of rising public debt and elevated inflation, Lee and Chua note. Thailand’s public debt climbed to 61.3% of GDP in January, far above the pre-pandemic levels of 41.2% in 2019. Foreign direct investment in Thailand has also been losing momentum over the past decade due to rising labour costs, an ageing population and growing competition from regional peers. Thailand’s manufacturing wages are the second highest in emerging Asean after Malaysia. The minimum wage was already raised by 5% to THB328 ($12.74) and THB354 on Oct 1 last year.
Challenges ahead
The newly-elected administration will inherit medium and long-term challenges, including high household debt and worsening demographics. The air pollution crisis has worsened recently, leading to campaign issues. Over 1.3 million people have reported being sick this year as of March 10, with nearly 200,000 hospitalised as thick smog covers the Thai capital Bangkok.
Household debt remains at 86.8% of GDP as of 3Q2022, significantly above 79.9% in 2019. Two-thirds of the debt is related to consumption while only a third comprises housing loans — unlike the pattern in advanced economies such as Japan and Hong Kong, say the Maybank analysts.
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The Bank of Thailand (BoT) assistant governor Suwanee Jatsadasak reportedly said a debt level above 80% of GDP could drag on long-term economic growth and risk financial stability. If nothing is done, the current economic situation of inflation and interest rates, BoT expects household debt to ease to 84% of GDP by 2027.
As Thailand’s labour force shrinks, a rapidly ageing population and low fertility rates remain key challenges. The analysts note that Thailand’s working-age population was the earliest to peak in Asean in 2017, while the total population is expected to peak in 2029. The country’s fertility rate dropped to 1.2% last year — with only 502,000 babies born — about 30% below the target of 700,000.
Thailand’s labour force and foreign worker shortages may cap potential economic growth in the coming years. Migrant workers remain below pre-pandemic levels at 2.6 million as of November last year (about 9% below 2019 estimates). The migrant workers mainly concentrate on manufacturing, construction, and services industries like trade and retail. The tourism sector faces a labour crunch amid the rebound in tourist arrivals, Lee and Chua add.
Tourism on the mend
Recovery is underway for Thailand’s tourism industry with the return of Chinese tourists, helping to cushion the decline in exports which has been contracting since October 2022. As of March 18, the country saw around 5.6 million visitor arrivals, generating THB215 billion in revenue, based on Thailand’s Ministry of Tourism and Sports data.
Tourists from China rose to 91,000 in January this year, just 8.6% of January 2019, with much more room for recovery. The three-month booking and accommodation occupancy rate have rebounded near pre-pandemic levels. The Thailand Ministry of Finance expects visitor arrivals to reach 27 million this year, in line with Maybank’s estimates.
However, Lee and Chua highlight the risks of delays in passing Budget FY2024, as seen in 2019. The Thai cabinet had approved a THB3.35 trillion budget for FY2024, with a budget deficit estimated at around 3% of GDP. They add that disbursements may be disrupted unless the budget is not deliberated in time.
There may also be delays in implementing several regulations. For example, the law to repeal the waiver of the financial transaction tax on share sales by individual investors in the SET — which was supposed to be effective mid-year — may be pushed back to be implemented by the next government. The Thai government had expected to gain around THB8 billion from the stock tax in the first year, which could increase to THB16 billion a year when the levy is doubled.
Foreign investment slowdown?
Another possible further delay involves the Eastern Economic Corridor projects. Prayut’s government had pushed for the development project, whose goals include urbanisation and spurring advanced industries while adding infrastructure to bolster the nation’s economic growth. Still, a board meeting in early March did not approve a proposal to adjust a construction contract for the high-speed rail linking the country’s three airports. This could dampen foreign investment interest, which had recently shown signs of an uptick after the pandemic.
Lee and Chua add that negotiations with Cambodia to explore petroleum resources jointly are expected only after the election. First Deputy Prime Minister Prawit Wongsuwon pushed for new talks on this issue as the country had been importing more costly liquefied natural gas for power generation in recent years following the drop in domestic gas supply in the gulf of Thailand.
Meanwhile, Deputy Prime Minister and Minister of Energy Supattanapong Punmeechaow had also said that the government would not let the political vacuum affect the economy, pledging to accelerate budget disbursement. Maybank says the government is looking to use the Oil Fuel Fund to subsidise diesel prices during the transition period before a new cabinet is formed. The Oil Fuel Fund’s deficit remained at THB97 billion as of March 19.
