Delay in government formation could hurt GDP growth, FTI warns

FRIDAY, JUNE 09, 2023

The Federation of Thai Industries is concerned over the delay in the formation of the new government, which may slash Thailand's gross domestic product (GDP) growth rate by 1-1.5 percentage point, FTI president Kriengkrai Thiennukul said on Friday.

Since tourism is currently the main sector driving the Thai economy this year, a delay in forming the government beyond August and potential mass protests, or political instability could discourage foreigners from visiting Thailand during late this year. This will have a short-term impact on economic growth, leading to a downward adjustment of the GDP growth rate to 2.0-2.5% from the projected 3.0-3.5%, Kriengkrai said. Additionally, there could be long-term consequences, such as foreign investors diverting investments to other countries in the region.

Hence, the incoming government must continue implementing tourism promotion measures to draw foreign tourists and ensure their convenience and safety during their visits here.

Other, factors such as the inadequate aircraft capacity of Thai airlines to serve inbound tourists and water shortage on some islands popular with foreign tourists must be addressed, he added.

Thailand has the opportunity to attract foreign businesses for investment and work. Due to geopolitical conflicts, which have resulted in the relocation of production bases, the government needs to expedite infrastructure improvements to support investment, Kriengkrai said. This includes legal reforms to enhance ease of doing business, such as streamlining visa applications and ensuring the continuity of free trade agreements (FTA) between Thailand and the European Union (EU).

The FTI believes global investors still look towards Thailand, hence the faster the coalition government is established and political stability achieved, the better it will be for the overall Thai economy, he said.

Meanwhile, Thanawat Polvichai, president of the University of the Chamber of Commerce (UTCC), is concerned about the unstable political situation, which may drag GDP growth to below 3%. The Economic and Business Forecasting Center of the Thai Chamber of Commerce is concerned about the lack of political stability, including the potential impact of protests outside Parliament, which could result in the Thai economy growing at less than 3%. However, the consumer confidence index in May showed continuous improvement for the 39th consecutive month.

According to Thanawat, who is also the director of the UTCC's Economic and Business Forecasting Centre, if the country sees political stability, without protests outside Parliament, the Thai economy could expand by 3-3.5% this year. The formation of a new government is expected in August, utilising the budgets allocated for the fiscal year 2023 and 2024, which may begin to be used in February-March 2024. Additionally, international tourist arrivals are projected to reach 25-28 million.

The UTCC is concerned about potential political instability, which may lower Thailand's GDP growth to less than 3%. However, if the formation of the coalition government occurs without much delay, and the global economy recovers quickly, the Thai economy has the potential to grow by 3.6-4%.

Meanwhile Sanan Angubolkul, chairman of the Thai Chamber of Commerce, said the zero-based budgeting policy (that requires considerable time to prepare), which the next Thai government is considering adopting, could delay annual state budgeting for this year and stall economic stimulus measures. The private sector wants to see a new and stable coalition government formed as soon as possible without daily street protest scenes damaging foreign business / investors' confidence in Thailand, he said.