6 June 2024

Thailand’s stock market has been vibrant since the Constitutional Court gave the green light to new electoral bills that are likely to benefit bigger parties. Stock analysts viewed the passing of the election law as paving the way for the next general election and the formation of a stable government. A government made up of one or some of the bigger parties is considered more stable than one formed by many small parties.

The stock market is a leading indicator as it moves faster than the economy while it is still subject to many uncertainties, because nobody knows for sure whether the democratic alliance will win over the rival conservative camp, which is backed by the military.

Election boost for spending 

Observers believe that political parties and politicians will spend more during the election campaign early next year leading up to the election expected to be held in May.

Political parties could spend up to 40 billion baht in their election campaign. The multiplier effect could generate jobs and production of related goods and services worth up to 70 to 80 billion baht, equivalent to adding 0.4 – 0.6 percentage point to the GDP growth rate, Thanawat Pholvichai, economist and rector at the University of the Thai Chamber of Commerce (UTCC), said.

Consumer confidence

After being fed up with General Prayut Chan-o-cha holding the reins of power for eight years, many voters have high hopes that the next election will bring fresh changes to Thai policymaking and the way the government manages the economy.

Prayut’s performance has failed to impress voters as they experienced economic hardship due to the COVID-19 crisis while the government was allocating more budget to buy military hardware and for national security at the expense of social welfare spending.

“I believe consumers will have higher confidence next year and they will be more optimistic under a new administration,” said Anusorn Tamajai, a member of the executive committee at Thammasat University’s Pridi Banompyong International College.

More confidence would mean more spending, as consumer spending accounts for about 55 percent of GDP.

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FDI confidence

The next general election is expected to bring Thailand closer to a true democracy after years of military-backed rule. A democratic civilian-run government is expected to promote the rule of law which will ensure transparency and policy consistency.

“Investors prefer rule of law,” said Anusorn, as they can run their business in a predictable manner.

The changes in supply chain activity, as investors diversify their investment out of China, is also expected to benefit Thailand and ASEAN as a whole amid the continuing tech war between the US and China. Beijing’s unpredictable ways of dealing with COVID-19 have made investors wary and many of them are moving their production facilities out of China to ward off the risks.

More spending on social welfare

The Prayut administration has come under repeated criticism for its penchant to spend on unnecessary weapons and allocating funds for national security when the country does not face any security risks. Opposition politicians and academics have long called for more spending on social welfare.

The next government is expected to slash the military budget and allocate more spending for social welfare and public investment.

Democracy and the economy  

Many studies have shown that the economies of countries that are fully-developed democracies tend to fare well too. For example, all advanced countries have well-entrenched democratic systems in place.

“There is a positive correlation between democracy and economic growth, income redistribution and economic justice,” said Anusorn.

Among the studies suggesting the correlation are: “Do Democratic Transitions Produce Bad Economic Outcomes?” by Dani Rodrik and Romain Wacziarg; “Democracy and Growth” by Robert J. Barro; and “Welfare Economics” and other works of Amartya Sen, the winner of the 1998 Nobel Prize for Economics.

Even China, run by the Communist Party, used to have some degree of democracy during the era of Deng Xiaoping, Jiang Zemin and Hu Jintao, but with the rise to power of Xi Jinping, the country has moved towards a more authoritarian rule, said Anusorn.

Before Xi came to power, the Community Party had some form of democracy where members collectively formulated policies and elected leaders. The party was not run by a powerful individual as it was under Mao Zedong and now under Xi, he added.

Some good news for Thai economy amid many negative factors

Fiscal limitation

Hit by the COVID-19 outbreak and slow recovery, Thailand’s economic growth is among the slowest in ASEAN.

Before the public health crisis, Thailand had already run budget deficits for many years due to spending exceeding revenue. The pandemic forced the government to borrow more funds to deal with the crisis, including for purchasing vaccines and allocating funds to support struggling businesses and workers.

This situation forced the current government to relax its public debt to GDP ratio to 70 percent of GDP from the safer level of 60 percent of GDP.  The next government would have to take into account the high public debt and engage in prudent fiscal management.

“To manage such constraints, they could cut some parts and add other parts,” said Anusorn.

A policy debate 

There is only a thin line between sound economic policies, which take into account sustainability, and bad populist policies that offer a short-term boost and potentially jeopardize long-term growth.

The Pheu Thai Party recently promised to raise the daily minimum wage to 600 baht by 2027 from the current range of 328-354 baht. Business leaders have strongly opposed the proposal, arguing it could impose higher costs on small companies.

Labour economist Lae Dilokvidhyarat believes the hike in minimum wage is possible if the new government could manage to achieve higher economic growth.

Role of other factors 

It is not only political factors that will drive the economy next year. Tourism is expected to play a key role amid a surge in tourist arrivals this year. More Chinese tourists could return to Thailand next year as China had started to relax COVID -19 restrictions in early December. Only a few Chinese tourists visited Thailand this year compared with 11 million in pre-COVID-19, out of total visitors of about 40 million in 2019.

Worry on corruption  

 The persisting corruption is expected to further siphon off public funds from government investment and spending.

“Corruption remains a persistent problem in Thailand’s politics. We do not see the current government making big changes in fighting corruption, and government leaders do not show a good example,” said Mana Nimitmongkol, secretary-general of the Anti-Corruption Organization of Thailand (ACT).  According to some estimates, 400 billion baht a year is lost to corruption, he said.

He said he did not see any serious efforts to crack down on corruption. He was also worried that as political parties start to compete for power, they may propose economic platforms that could hurt prudent fiscal management.

By Thai PBS World’s Business Desk