Uncertainty over new government stability dampens economic outlook, says SCB’s EIC
Although investors have somewhat eased their worries about the local politics, the question over stability of the new government continues to dampen economic outlook, according to a research by the Siam Commercial Bank’s Economic Intelligence Center.
On June 5, Prime Minister Prayut Chan-o-cha was elected as Thailand’s next prime minister in a joint upper and lower house parliamentary vote, bringing more clarity to the local political scene.
However, the SCB’s EIC said that the new government will face difficulty in balancing the interest of each coalition party which made different promises to their voters. Moreover, the numbers of the MPs of the government and opposition camps are too close, raising the question over the longevity of the new government.
The Stock Exchange of Thailand’s index rose 33.19 points between June 4-6, after it became clearer that which camps would form the new government. Investors expected that the ongoing mega projects including rail, port and the Eastern Economic Corridor (EEC) will continue because the coalition government is likely to consist of some incumbents of the current Prayut administration.
However, the government will find it hard to push through large-scale projects under the political gridlock atmosphere.
Also, the new prime minister will have to fine tune the demands of each political party which promised their voters with feel-good policies during the election campaign.
Their objectives may be similar but the details are different. This can cause a headache for the prime minister on how to allocate budget to finance projects with long-term budget obligations, such as farm income guarantee, welfare allowances for pregnant mothers, allowances for newborn children and a million houses for low-income earners, said the SCB’s EIC.
The SCB’s EIC recommended that the government should select economic-stimulus measures with multiplier effect on the overall economic growth. They should not leave fiscal burden in the future and should not distort the market.
Additionally, the new government should help strengthen small and medium sized enterprise as SMEs’ capacity has dropped in the past years, as seen by higher non-performing loans in SMEs when compared to big companies.
According to a World Economic Forum’s Executive Opinion Survey 2017-2018, the most problematic factors for doing business in Thailand is the government’s instability and coups.