SCB EIC, a research centre under Siam Commercial Bank, has expressed concerns about heightened political risks undermining foreign investment in both financial and capital markets, as well as long-term foreign direct investment.
Various political risks could significantly impact foreign investor confidence, resulting in substantial capital outflows from offshore investors in the Thai equity market, said Somprawin Manprasert, chief economist at EIC.
These internal political issues may affect the government's economic policies, leading to greater uncertainties and reduced confidence within the business sector, he said.
The Criminal Court on Tuesday released former Prime Minister Thaksin Shinawatra on bail of 500,000 baht following his arraignment on lèse-majesté and computer crime charges related to comments made during a 2015 interview.
EIC expects the Bank of Thailand to begin reducing its policy rate in the fourth quarter this year, dipping 25 basis points to 2.25%, with a further cut to 2% anticipated early next year. The assessment is supported by upcoming economic stimulus measures, said Mr Somprawin.
EIC slashed its Thai GDP growth forecast for 2024 to 2.5% from 3%. Growth will be primarily driven by the service sector and a strong rebound in foreign tourist arrivals.
The research unit also lowered its projections for several economic indicators this year, including government consumption growth dipping from 3.3% to 1.4%, private investment growth falling from 4.4% to 3.6%, public investment growth declining from 2.2% to a contraction of 0.5%, and export growth reducing from 3.7% to 2.6%.
He highlighted structural challenges for Thai economic growth, with economic fundamentals facing downward pressure from several factors, including limited growth in merchandise exports, partially attributed to the weakened correlation between the Thai export recovery and global trade volumes, with declines expected this year in shipments of steel, fruit and hard disk drives.
The manufacturing sector is gradually rebounding amidst external pressures from increased competition with Chinese imports, driven by overcapacity in China, and internal pressures stemming from a slowdown in domestic demand.
Despite an accelerated disbursement of public investment spending following a delay of more than six months to pass the 2024 budget bill, it is unlikely to fully offset the contraction in the first four months of this year, according to EIC.
"Thai GDP growth is expected to rebound in the second quarter this year, quarter-on-quarter. However, growth is anticipated to moderate in the second half of the year relative to the first, placing pressure on private consumption because of increased vulnerability in the household sector," said Mr Somprawin.
EIC predicts Thai GDP growth next year of 2.7%.