Thailand’s premier faces weakened economy

On the campaign trail, Thailand’s new prime minister promised to kick-start the pandemic-hit economy, bolster household incomes, support small businesses and bridge gnawing inequality in the country of 71 million people. Now, after three months of post-election paralysis, Srettha Thavisin has to walk the talk - swiftly. The real estate tycoon won parliamentary support on Tuesday to take the reins of Southeast Asia’s second largest economy at the head of an unlikely coalition.

A day before Srettha’s confirmation in parliament, Thailand reported its economy grew just 1.8% in the April-June period from a year earlier, significantly below the 3.1% expansion forecast by economists. “The picture is not all wine and roses,” Thailand’s central bank chief Sethaput Suthiwartnarueput said in recorded remarks played on Wednesday.

“There are some soft spots. Exports have come in weaker than expected due, in significant part, to China’s slowdown. Total spending from tourism has also come in a bit softer due to fewer Chinese tourists than expected.”

Besides the shadow cast by a slowing China, Thailand’s largest trading partner, high household debt and rising interest rates have weighed on domestic consumption. Tourism, a major driver of the Thai economy, has managed a robust recovery, although arrivals and tourist spending are still below pre-pandemic levels, data shows.

After months of a caretaker administration and political limbo following a May general election, a new government should help calm the market, one of Asia’s worst performers, analysts said. Thailand’s main stock index rose 0.2% on Wednesday but the baht eased 0.2% against the dollar, following Tuesday’s rallies. “We can expect to see a short-term sugar high,” said Kobsidthi Silpachai, head of capital markets research of Kasikornbank. “After the dust settles, new risk factors will be in the spotlight, such as the formation of a cabinet. The private sector and investors will then decide their vote of approval.”

In this first address since winning office, Srettha on Wednesday vowed to provide solutions to fix Thailand’s economy, among other measures, and manage the budget transparently. “Thailand is at an important juncture,” he said, “I am confident that the next four years will be four years of change.” Deftly putting together a 3.35 trillion baht ($95.96 billion) budget for the 2024 fiscal year will be a key task for Srettha, a political novice who Pheu Thai introduced to voters as an experienced hand to steer a flagging economy. The process was put on hold by the outgoing administration for the new government to decide on, slowing down new investment projects. The government planning agency said the budget will be likely ready in April 2024, well after the start of the new fiscal year in October.

“Arguably, one of the most pressing issues facing the new government would be the passage of the FY24 budget,” Goldman Sachs said in a note. “Without a new budget, government spending will be very restricted.” Ahead of the general election, Srettha and his populist Pheu Thai party laid out pledges that included targeting economic growth of 5% every year, a handout scheme worth 560 billion baht ($16.04 billion), raise daily minimum wages and triple farmers income. The party, which finished second in the May poll, also promised to reduce urban rail fares, energy, electricity and gas costs, besides providing one-year debt moratorium for smaller businesses hit by COVID-19. But its ability to execute will depend on the military backers that Pheu Thai has allied with to be able to form a government. “Going forward, we will have to wait and see which economic policies will be announced; how can they be done and how quickly?” said Poon Panichpibool, a markets strategist at Krung Thai Bank. In his first 100 days in power, Srettha, who has yet to announce his economic team, must focus on reducing living expenses and private sector costs, including fuel, said the Thai Chamber of Commerce.

Other priorities should include supporting the tourism industry during the year-end high season and accelerating budget disbursements, it advised. “Currently, the economy is worrying,” said Sanan Angubolkul, the chamber’s chairman.

Reuters