Thai politics stands at a crossroads as an attempt to form a new government by eight coalition parties was blocked by military-appointed senators during the vote for a premier in parliament last week.
Two months after a historic win by the Move Forward Party (MFP) in the polls, political uncertainty still looms over the stock exchange, while approval of a fiscal budget could be delayed by up to six months, which has the business sector on edge.
Possible political demonstrations could affect the tourism industry, which is the sole bright spot for the economy at the moment.
As companies await the political wrangling, several outcomes are still possible.
DIM OUTLOOK
The delay in forming a new government, following the unsuccessful first attempt by MFP leader Pita Limjaroenrat to gain a majority of votes in parliament, sparked new economic concerns for the country as it attempts to overcome a lull caused by the pandemic and a surge in global energy prices, said the Federation of Thai Industries (FTI).
Lockdown measures during the pandemic handcuffed the economy, while the Russia-Ukraine war led to a surge in global energy prices last year.
While the Thai economy is recovering this year, driven by higher foreign tourist arrivals, the political conflict is emerging as a new hindrance, said Kriengkrai Thiennukul, chairman of the FTI.
"The target to draw 30 million foreign tourists this year may be missed because of the protracted political problem. This will affect people's spending as well as manufacturers that depend on tourism for sales," he said.
Mr Kriengkrai said if supporters of Mr Pita come out in great numbers to protest him being blocked from the seat of prime minister, the tourism atmosphere would eventually be affected, causing foreigners to rethink plans to visit Thailand.
The country needs sectors other than tourism to drive its economy, but this cannot happen unless a new government is established, he said.
DIFFERENT SCENARIOS
Adisak Phupiphathirungul, first vice-president of Thanachart Securities, said he still believes if the MFP can form a new government with the Pheu Thai Party, there will be a balance in economic policies because the respective gap of 151 and 141 MP seats between the two parties is not that wide.
"If the MFP can form a government, it doesn't mean every MFP policy would be pushed through a coalition government easily," he said.
However, Mr Adisak said the stock market is likely to react positively if minority parties are able to form a new government.
"Yet if the government does not have the majority of seats in parliament, it would be difficult for it to push forward any policy," he said.
Thailand Development Research Institute (TDRI) assessed four possible scenarios for the formation of a new government, with each having a different effect on the Thai economy.
Nonarit Bisonyabut, research fellow of TDRI, said the MFP coalition could form a government, with Mr Pita as prime minister. If Mr Pita is sidelined, Pheu Thai could lead a coalition government with MFP. A third option is Pheu Thai forming a coalition government with conservatives, excluding the MFP, while a final alternative is conservative forces forming a minority government.
He said whatever the scenario, the party that has ultimate control over the country's economy, whether it is Pheu Thai or MFP, would have a significant impact.
If the MFP controls the government's economic policy, Mr Nonarit said several stimulus measures would be issued to help low-income people, such as increasing the monthly old age allowance for the elderly, raising the daily minimum wage, and providing a monthly child support grant. The financial markets and monopoly businesses are unlikely to support this scenario, he said.
If the Pheu Thai Party manages economic policy, Mr Nonarit said there will be a number of short-term economic stimulus measures, such as a 10,000-baht handout via digital wallets to everyone aged 16 or older, as well as monthly subsidies for every household to earn at least 20,000 baht per month.
He said it is difficult to determine which economic approach is better because they represent different ideologies, with Pheu Thai promoting neoliberalism, while the MFP champions a welfare state.
"Both approaches have their pros and cons. It's too early to say which approach is better," said Mr Nonarit.
He said Pheu Thai's approach, which focuses on short-term economic stimulus measures, still lacks clarity on economic restructuring in the long term, compared with the policy of promoting the Eastern Economic Corridor and bio-, circular and green economic model of the caretaker government.
The MFP approach, which focuses on massive budget spending to improve public welfare, could affect fiscal stability and lead to higher public debt if the government does not develop new sources of revenue, said Mr Nonarit.
Supporters of the Move Forward Party hold placards of Pita Limjaroenrat, the party leader, outside the parliament during a vote for a new prime minister last Thursday. Apichart Jinakul
FOREIGN PLAYS
Asia Plus Securities (ASPS) is advising investors to temporarily invest in stocks based on the global economy.
As global stock markets rallied last week, led by Hong Kong, Germany, the US, Vietnam and Indonesia, the SET index remained a laggard.
"The Stock Exchange of Thailand index is now driven by global plays, but is weakened by domestic turmoil," ASPS said in a research note.
"Stocks related to the global economy outperform others because they can withstand domestic volatility. Politically polarised stock groups, on the contrary, are starting to realise the effects of the political vacuum and investor concerns about political rallies, such as tourism stocks."
Niwes Hemvachiravarakorn, founder of Thai Value Investor Club, said foreign stock markets are more attractive than the Thai bourse for now, particularly the Vietnamese stock market, which is the rising star of Asia.
Vietnam is projected to have economic growth of 5.8% this year and 6.5% in 2024, outpacing the global economy.
The VN30 index's forward price-to-earnings ratio is 10.2 times, lower than the 10-year historical average of 12.25 times and 16.4 times of global stocks, said Mr Niwes.
"That is an interesting level compared with global stock markets, and better returns are expected in the second half of the year for the Vietnam index," he said.
THAI MARKET OUTLOOK
ASPS assessed that investors do not want a protracted prime ministerial vote, opting for a stable government.
If Mr Pita doesn't receive enough votes for PM, but instead a representative from the eight-party coalition becomes premier, the SET index will move in a range of 1,480-1,550 points, said the brokerage.
If there is a change in parties to form a new government, the SET index will be open to downside risks again, depending on the participating parties, said ASPS.
"If Pheu Thai Party leads the formation of a new government, the policies would be more market-friendly than with MFP," said the brokerage.
If the coalition fractures and MFP becomes an opposition party, protests could occur and Thai politics may be mired in conflict, said ASPS.
Land and House Securities advised investors to monitor the Constitutional Court's consideration of Mr Pita's media investment holdings.
The brokerage's research department predicts the senators have an opportunity to refrain from making a ruling. If so, the department estimates three scenarios.
The first scenario is the Pheu Thai Party emerges as a leader of the coalition parties, which the brokerage assesses as the best choice for the stock market and most likely to happen.
If Pheu Thai leads a coalition of different parties in forming a new government, the SET index would increase, but by less than in the first scenario, said the department.
If the PM vote is protracted, that would be the worst-case scenario for the stock market, said the brokerage.
CARETAKER ACTION
An executive from the aviation industry who requested anonymity agreed with the FTI that political demonstrations could affect the tourism sector and the lack of a government means no entity could issue stimulus measures to prop up the economy during the second half of this year.
As the caretaker government is not legally allowed to decide on critical issues during a political vacuum, airlines still face obstacles that require approval from the government, such as a reduction of the excise tax on jet fuel and aircraft imports.
The executive said the aviation industry needs a new government that understands how it was monopolised by a limited number of service providers and can work to help fix these issues.
For instance, Aeronautical Radio of Thailand charges expensive fees compared with average airfares, such as 10,000 baht for flights from Chiang Mai and Bangkok, said the executive.
Airports of Thailand collects a passenger tax of 100 baht per ticket, which is 10% of the average domestic airfare of 1,000 baht.
"Many airlines are waiting to import aircraft to serve growing demand. The problem is we need final approval from the Transport Ministry after submitting a proposal to the Civil Aviation Authority of Thailand. This process is redundant and ensures airlines cannot manage fleets in line with increasing demand," said the executive.
While awaiting a new government, the caretaker government should clear as many easy obstacles as possible for airlines if the country wants to grow the tourism market, said the executive.
The ambiance at the Thai parliament in Bangkok last Thursday following the voting for the new prime minister of Thailand. Nutthawat Wichieanbut
Challenging EXPORT Climate
Shipments have long been the key economic engine for Thailand, but they turned sluggish as trading partners face economic problems caused by inflation and geopolitical conflicts.
According to the Commerce Ministry, the customs-cleared value of exports dipped for an eighth consecutive month in May, falling by 4.6% to US$24.3 billion.
The Joint Standing Committee on Commerce, Industry and Banking (JSCCIB) announced earlier this month its export growth forecast fell to -2% this year, down from -1%.
The committee's best-case scenario for exports is zero growth.
The latest projection is based on the global economic slowdown and estimates for China's growth to decrease to 5.4-5.5%, down from a previous estimate of 6%, in addition to the impact of rising interest rates, said the JSCCIB.
If the political uncertainty and street demonstrations cause foreign investors to delay or cancel their investment projects in Thailand, the country's economy could sag, said the committee.
"We want the ongoing political issues to have a positive ending. Thailand needs peace and the business sector needs the new government to drive the economy," said Mr Kriengkrai.