After the Constitutional Court brought an end to the government of Prime Minster Srettha Thavisin, the House of Representatives voted for Paetongtarn Shinawatra, the Pheu Thai Party's leader and daughter of former premier Thaksin Shinawatra, to take the role just two days later.
A quick move and firm commitment from the coalition parties to form a new government could help ensure a smooth transition, but the business sector is still worried about the abrupt change affecting the continuity of critical policies, which could worsen stagnant economic growth.
URGENT TASKS
Aat Pisanwanich, an independent analyst on international economics, said the major challenge facing the new government is the revival of domestic entrepreneurs, particularly Thai small and medium-sized enterprises (SMEs), which are struggling amid an influx of cheap goods from China.
Many Thai SMEs, unable to compete with Chinese products on price, have shut down their businesses, creating a ripple effect in the economy and ultimately reducing domestic purchasing power as people lose jobs or have decreased income, he said.
Mr Aat said the new government must swiftly find concrete measures to address this issue. Several countries, especially Thailand's neighbours facing similar problems, have already implemented stringent measures.
For example, Indonesia established a rule that goods sold on online platforms must not be priced below 3,500 baht.
He said Thailand should adopt a similar measure, possibly setting the minimum price at 1,500 baht, as the nation currently defines low-valued goods as those priced less than 1,500 baht.
The new government should also reassess the policy of positioning Thailand as a regional distribution hub, as the original goal was to establish distribution centres here to export goods to third countries, said Mr Aat. Instead, these cheap products have flooded the Thai market.
Mr Srettha discusses the planned 10,000-baht digital wallet scheme at a press conference in November 2023. Chanat Katanyu
INVESTMENT RETHINK
He recommended a re-evaluation of the free trade and open investment policies of the past two decades that have had a negative impact on Thailand's industrial sector, especially SMEs.
In the past, Thailand's open investment policy focused primarily on the volume of investment without considering the development of domestic entrepreneurs, said Mr Aat.
As a result, foreign investors, particularly from China, have entered the country, but have not utilised Thai-made components or Thai supply chains.
Instead, they import parts from China, as seen in the electric vehicle (EV) industry.
Therefore, the new government should reconsider the open investment policy by including conditions that require foreign investors to help develop or create a certain number of Thai entrepreneurs, such as 1,000 companies, he said.
Mr Aat also called on the new government to quickly address the country's competitiveness, in both the agricultural and industrial sectors, where Thailand lags behind its Southeast Asian competitors.
Another issue is Thailand's energy costs, which are higher than those of neighbouring countries, which raises production costs.
Thailand's oil costs are higher than in Malaysia, while electricity prices here exceed those in Vietnam.
As a result, the production costs of various industrial goods, such as fertiliser, are higher in Thailand than in other countries, as energy prices are a fundamental component of production costs, he said.
Pawoot Pongvitayapanu, honorary president of the Thai E-commerce Association, agreed Ms Paetongtarn should curb the influx of cheap Chinese products that are plaguing local SMEs, as did Mr Srettha, who took this issue seriously.
Thailand's 31st Prime Minister and Pheu Thai Party leader Paetongtarn Shinawatra speaks to the press at a briefing on Friday. Nutthawat Wichieanbut
NEW HOPE
The establishment of a new government is giving Thailand fresh hope that it can overcome its sluggish economy, although some state functions and private sector investments might experience a "vacuum period" while power changes hands, said Montri Mahaplerkpong, chairman of the International Chamber of Commerce.
During the transition to a new chapter of the Pheu Thai-led coalition government, authorities may need to wait for their new bosses to decide on key issues, while entrepreneurs monitor the situation rather than push ahead with new projects, he said.
"Investors will do nothing. They want to first wait and see who will be the new prime minister and new cabinet members," said Mr Montri.
"I believe the change to a new government could be beneficial for the Thai economy because a newcomer may boost confidence among Thai and foreign investors."
He said at least two important problems await the new prime minister.
The first is the consumer spending slowdown. Consumer spending previously grew by 5-6% a year, but the rate has fallen significantly, said Mr Montri.
He attributed the decrease to lower incomes, as many people have no savings for emergencies.
Another pressing issue is the high level of household debt. Authorities need to consider this matter carefully and devise the right solutions, said Mr Montri.
The country's household debt-to-GDP ratio is high at 91%, causing banks to tighten lending criteria to avoid the risk of non-performing loans.
This cautious approach affected many business sectors, especially the automotive industry, which suffered a sharp drop in domestic car sales during the first half of 2024.
"If the new government succeeds in addressing chronic household debt, it could lead investors to increase their investments, ultimately stimulating the economy," he said.
Many prospective foreign investors are expanding into Thailand's neighbours where electricity prices and wages are cheaper, said Mr Montri. Some investment incentive packages in Thailand may not be that attractive, he said.
"Thailand's appeal in attracting foreign investment has diminished compared with neighbouring countries. We are no longer sexy," said Mr Montri.
Kriengkrai Thiennukul, chairman of the Federation of Thai Industries, earlier expressed concern over the impact of the verdict to remove Mr Srettha, noting it may affect foreign investment plans as investors want to know whether certain economic policies will continue.
In the energy sector, some plans that require government approval may be delayed as new positions must be appointed, said industry observers.
The new national energy plan (NEP), which already passed a public hearing, requires approval from the National Energy Policy Council, chaired by the premier.
The plan was scheduled to be forwarded to the council by September this year.
The NEP, which is scheduled to be enforced from 2024 to 2037, comprises the power development plan, the alternative energy development plan, the energy efficiency plan, the oil plan and the gas plan.
Energy officials proposed a small nuclear power plant project in the power development plan, which aims to promote greater use of renewable energy.
Prime Minister and Pheu Thai Party leader Paetongtarn Shinawatra and Former Prime Minister Srettha Thavisin at a campaign for the Phue Thai Party in front of the Democracy Monument in Bangkok on May 13, 2023. Apichart Jinakul
SPENDING ON TRACK
Somchai Sittichaisrichart, managing director of SiS Distribution (Thailand), urged the new premier to approve the fiscal 2025 budget on time, warning that delays could worsen the economy.
Despite political instability, Mr Somchai said he believes foreign cloud data centre operators will continue to invest in Thailand because demand for cloud services in the domestic market has already expanded by 40% this year.
Cloud services is a growth sector, with continued expansion expected in the coming years because it helps businesses address economic challenges by reducing initial costs through pay-per-use models, while enabling scalability for large concurrent applications such as Paotang and other digital platforms, he said.
Mr Somchai predicts all of the state IT project budget will be spent in 2024, with allocations to cloud and non-cloud solutions on a 50:50 basis.
He said he expects state cloud spending to surpass non-cloud spending in 2025.
"Thailand needs to find a new S-curve industry by adding technology to leverage its strengths in key sectors such as food, otherwise we will lag behind because of lower economic growth," said Mr Somchai.
Takit Chardcherdsak, assistant head of research at Krungsri Securities, said with a minimal political vacuum, he expects the fiscal 2025 budget to be only "slightly delayed".
The new Thai ESG Fund, which was endorsed by the cabinet, is highly likely to proceed, while the Vayupak Fund sales could be delayed because this process needs to be approved by the new administration, he said.
"The digital wallet stimulus might go ahead under the new Pheu Thai-led government," said Mr Takit.
Sorathep Rojpotjanaruch, head of the Restaurant Business Club, said if the digital wallet handout is cancelled, mid-sized restaurant chains may feel the impact more than small restaurants, as the latter may choose not to participate in the scheme.
"If the next government introduces a new stimulus plan or policy, we have to start from square one again, which is likely to pose a negative impact at the grassroots level through to next year," said Mr Sorathep.
Apart from the gloomy economy, the restaurant industry is confronting an influx of Chinese restaurant operators, calling for government measures to deal with this threat and tighten law enforcement, he said.
Prime Minister and Pheu Thai Party leader Paetongtarn Shinawatra at an event of the Phue Thai party on May 3, 2024. Pattarapong Chatpattarasill
ECONOMIC CONTINUITY
Sanan Angubolkul, chairman of the Thai Chamber of Commerce, said many parties are concerned a political vacuum could undermine business confidence and hinder the country's economic growth.
"Under a new government with the same coalition parties, the continuity of government policies will remain intact, which will help to restore confidence among Thais and foreign investors," Mr Sanan said.
In response to Mr Srettha's dismissal, the Stock Exchange of Thailand fell sharply on Wednesday before rebounding, while the baht remained steady.
This reflects the confidence of Thai and foreign investors in the economy moving forward once there is a new government, he said.
Mr Sanan said the establishment of the new cabinet should be completed as soon as possible to expedite existing policies, especially stimulus measures and fiscal 2024 budget disbursement, while free trade deal negotiations should be accelerated to increase exports.
The chamber expects the economy to grow by 2.2-2.7%, in line with the projection by the Joint Standing Committee on Commerce, Industry and Banking.
Aswin Yangkirativorn, chief executive of Thai Lion Air, said the government led by Prime Minister Prayut Chan-o-cha worked to promote the Eastern Economic Corridor and elevate U-tapao as a new airport hub, but plans were disrupted by the pandemic.
Since Mr Srettha's cabinet took office last year, there was slow progress on these projects, he said.
Mr Aswin said the new government should accelerate plans to improve the potential of this airport and economic zone.
Former Prime Minister Srettha Thavisin delivers a speech outlining Thailand's economic vision and urging Asian countries to work together more closely at the 29th Nikkei Forum Future of Asia, under the theme of 'Asian Leadership in an Uncertain World', during his visit to Japan in May 2024.
POSSIBLE DELAYS
Ratasak Piriyanont, senior vice-president of macro strategies at Kasikorn Securities, said if the digital wallet scheme is scrapped without a replacement stimulus, Thailand's GDP growth would be reduced by about 0.2 percentage points per year.
If the fiscal 2025 budget is delayed, economic growth could be cut by 0.1 percentage points a month, said Mr Ratasak.
Krungsri Securities analyst Nuttapon Kumnounphon said the digital wallet stimulus is considered a key measure for Pheu Thai, with a budget estimated at 450 billion baht, which the Bank of Thailand forecasts could increase GDP by 0.9 percentage points.
The public is waiting for more clarity on the digital wallet scheme, which is the party's flagship stimulus policy, said Mr Nuttapon.
"We believe if the new government is led by the same coalition, the project has a chance to move forward, with a minor delay," he said.
"In the worst-case scenario, we believe policies to stimulate domestic spending would still be the top priorities of the new government."
SCB EIC, the research arm of Siam Commercial Bank, expects the digital wallet handout scheme to continue, albeit with a delay until December based on technical challenges.
In this scenario, assuming existing economic policies remain unchanged, the impact on Thailand's economic growth for 2024-2025 is expected to be minimal, according to the research house.
However, there is an increased downside risk based on political uncertainty, said Somprawin Manprasert, chief economist at SCB EIC.
Political uncertainty may temporarily affect the country's money markets and foreign exchange rate, but SCB EIC expects the situation to stabilise by the third quarter of this year.
Former premier Mr Srettha at the Phloenchit market in Bangkok on Wednesday prior to the court dismissal. Nutthawat Wichieanbut
