Leading economists keeping a close eye on political situation

While such an outcome was expected, the Board of Trade has expressed concern over the slow growth of Thai GDP of 2.5-3.0%, and the real estate business has been vocal in its fears of delayed budgets and decreased investment.

According to Kiatnakin Phatra Securities chief economist Pipat Luengnaruemitchai, an ongoing uncertain political situation poses a clear risk to the Thai economy as it will hinder new investments from both the public and private sectors.

Currently, the sole driving force of the Thai economy is tourism. However, if the situation drags on and leads to protests, it will immediately impact the overall tourism sector and pose a greater risk to the Thai economy.

CIMB Thai Bank chief economist Amonthep Chawla was more cautious, saying it was probably too early to assess the direction of the conclusion and the resulting impacts. Nevertheless, based on the ongoing political uncertainty which could potentially result in a prolonged government formation, effects could be observed in three aspects:

1. The impact on public sector investment may be more significant than anticipated. If the government formation is postponed until after the third quarter or extended until the end of the year or next year, it will affect government spending and the state budget, which will not contribute to supporting the Thai economy. Consequently, there might be a delay in public-sector investments, as well as a slowdown in private-sector construction projects.

2. Confidence in the financial market and private sector investments will be affected. As the world is undergoing a shift in production bases, especially with China increasing its presence in Asean, Thailand’s perceived lack of political certainty and stability may hinder new investments into the country and encourage relocation of production bases to Indonesia or Vietnam. Should the political situation continues to linger, Thailand might miss out on new investments in the coming 1-2 months, and there might be a decrease in significant investments or large-scale investments in the near future.

3. Household consumption will inevitably be affected. Even without political protests, households are currently exhibiting low purchasing power and only recovering at the middle level. Without support to bolster the economy, there will be significant pressure on households, particularly in the agricultural and SME sectors.

If the political situation drags on and leads to public unrest, the fourth quarter Thai economic growth target of 5% will certainly be affected, Amornthep added.

Trinity Securities analyst Nuttachart Mekmasin noted that the election results for the current Prime Minister selection aligned with market expectations that the first round of voting would not pass. However, the outcomes had a positive effect on certain stocks, leading to increased profits. For example, electricity companies saw reduced pressure on electricity cost adjustments, construction contractors benefited from labour cost relief, and large-cap stocks in various industries saw positive movement.

It is therefore expected that the Thai stock market today (July 14) will not experience significant declines if it adjusts downwards, and any upward movement will be limited.

Nuttachart added that the research team had assessed the outcomes of the Prime Minister selection and government formation in three scenarios:

1. If Pita becomes the Prime Minister and the Move Forward Party leads the government formation, it would have a slightly positive impact on the Thai stock index, although concerns about the Move Forward Party's policies could negatively affect the capital market.

2. Were the Move Forward Party to join a newly formed government coalition, this too would have a slight positive impact on the Thai stock index. However, if MFP were to end up in opposition, the rise or fall of the index would largely depend on subsequent protests and whether these could be controlled.

According to the University of the Thai Chamber of Commerce president and director of the Economic and Business Forecasting Center Thanawat Polvichai, if the government formation is delayed, an interim government would be chosen to take over until a new government is formed. It is estimated that if the government is not formed by October, 2023 and if protests occur, the Thai economy could expand by only 2.5-3.%.

If the government is formed quickly, and the global economy recovers rapidly, there is a chance that the Thai economy could expand by 3.6-4%.