Kasikorn Research Center (K-Research) expects the domestic political situation to be a key factor affecting the Thai economy in the second half of this year.
According to the timeframe, three votes for a new prime minister are scheduled for July 13, 19 and 20. Several scenarios could affect the economy differently, said K-Research deputy manager Nattaporn Triratanasirikul.
“Given several variables of political factors, we need to monitor the situation step by step. If the new government cannot be set up by the timeline in August, it would significantly affect Thai GDP growth this year,” she said.
According to the Federation of Thai Industries, given a worst-case scenario that the new government cannot be formed by August, the country’s GDP growth rate would decline to around 2-2.5% in 2023, Ms Nattaporn said.
In addition, the economic recovery of China, which has not met expectations, would also dampen the Thai economy in the second half of the year, especially the export and tourism sectors.
China’s manufacturing purchasing managers’ index (PMI) is in line with market expectations for 49.0, while non-manufacturing PMI is at its weakest this year, coming in at 53.20 in June, compared to 54.5 in May and 56.4 in April. A PMI reading above 50 points suggests an expansion in activity, while a reading below that level suggests a contraction.
Moreover, China reported a 12.7% year-on-year growth in retail sales of consumer goods in May 2023, a decrease from April’s growth rate of 18.4%.
K-Research expects Thailand’s export growth to China to be 3.4% for this year. Meanwhile, the research house predicts overall Thai exports will contract by 1.2% in 2023.
The research house expects the country’s exports to continue to improve in the second half of this year, in line with better global demand and the low-base effect of Thai exports.
Ms Nattaporn said K-Research maintained its 2023 GDP growth projection at 3.7%. However, the growth rate would be better in the second half of this year at around 4.3%, compared with 3% in the first half, because of the rebound in the tourism sector with 28.5 million arrivals expected in 2023, alongside export growth.
Thanyalak Vacharachaisurapol, deputy managing director of K-Research, said household debt is another key challenge for the new government that it needs to manage comprehensively.
Economic expansion and higher incomes would help to solve the
swelling household debt in the long term.
“With the country’s GDP growth at existing levels and the central bank’s measures to contain household debt, it would take around five years to reduce the country’s household debt to 80% of GDP, according to the Bank for International Settlements standard”, Ms Thanyalak said.
The country’s household debt is at 90.6% of GDP following the Bank of Thailand’s redefinition.
Given the central bank’s tentative guidelines on responsible lending and risk-based pricing to reduce persistent debt in the household sector, especially revolving loans, through interest rate cuts, this would reduce banking industry earnings by around 2%.