The economy is currently in its most severe state, but with the national budget announced, economists expect the situation to bottom out later this year.
Nonarit Visonyavut, an economist at the Thailand Development Research Institute (TDRI), said things often get worst just before they get better, and the same can be said for Thailand’s economy.
Nonarit said the country’s economy was in a bleak short-term picture due to several factors, including stagnant state budget spending and high domestic and international interest rates that discourage investment.
Politics is a potential stumbling block
But the situation will improve as global interest rates fall, he said. The European Central Bank recently cut interest rates, and the United States is expected to cut rates further this year.
“I call this the ‘4 a.m. economy’ because there is light at the light soon. Interest rates are falling, the United States is expected to cut interest rates four times next year and Thailand is likely to follow suit,” he said.
Nonarith said state spending would begin in May and continue as details of government projects are revealed. Meanwhile, the export sector is showing signs of improvement, as is the global economy.
“This means the day is dawning and the economy is expected to start growing again,” he said.
However, the pace of the country’s economic growth will depend heavily on its ability to meet global market demands and address the challenges posed by an ageing society.
Additionally, the political situation could also slow the economic recovery, especially if Prime Minister Suret Tavissin is removed from office, resulting in political unrest.
The lawsuit against Suretta relates to the controversial appointment of politician Phichit Chumbang as Minister in the Prime Minister’s Department in the last cabinet reshuffle. The lawsuit was filed by a group of 40 senators who accused the prime minister and Phichit of violating ministerial ethics.
They asked the court whether they should be dismissed from their posts under Article 160(4) and (5) of the Constitution, which governs ministerial ethics.
They argued that Phichit was ineligible for ministerial posts because he had served time in prison for contempt of court in a 2008 bribery case he brought on behalf of Thaksin Shinawatra.
“The economy is also dependent on the political situation. If the country has to find a new prime minister, government policies will be further delayed,” Nonarith said.
Nonarit: Politics could hinder the recovery
Digital wallets are a top priority
Asked whether the Pheu Thai-led government’s policies over the past nine months amounted to economic stimulus, the TDRI researcher said aside from the delayed budget announcement, the government was focusing on the digital wallet plan over other smaller economic measures.
“There is no small programme to facilitate this as the government has to conserve funds for the cash transfer programme,” he said.
He said there was still a big question mark over foreign investment. Some major companies have said they are planning to relocate to Thailand, but it remains to be seen whether the prime minister’s overseas trips to attract foreign investment will bear fruit.
“There are fundamental factors to attract investment such as manpower and skill sets. This is the main hurdle and we need a long-term plan to address this,” he said.
Nonarith said that once political uncertainty is resolved and political stability is established, the government should implement short-term measures and focus on economic reforms, especially developing the workforce to support the market.
Slumping exports, falling spending
Tanit Sorat, vice president of the Confederation of Trade, Industry and Employers of Thailand (EconThai), said supply chains were being affected as Thailand’s traditional powerhouse, the export sector, remained weak.
Due to low purchasing power in domestic and international markets, industrial production remains at 60 percent of total capacity.
As a result, the services, logistics, labor and transport sectors are all feeling the effects of the slowdown in economic activity.
Global factors such as the trade war between China and the US and tensions in the Middle East, particularly attacks on ships in the Red Sea, have further exacerbated the situation for entrepreneurs.
High levels of household debt in the country are slowing consumer spending, hurting manufacturing and posing liquidity risks for companies.
“It seems that only the tourism industry is surviving, but this industry accounts for 8 percent of the country’s GDP,” he said.
Regarding foreign investment, he said companies have long-term investment plans and it is unlikely that they will be blocked solely because of political issues.
Investment volume last year exceeded 600 billion baht, of which 70 percent came from foreign direct investment.
The government “does nothing”
Tanit said the government has done little in the past nine months, choosing to wait for the digital wallet scheme instead of suspending debt repayments and implementing stimulus measures to boost liquidity.
“The chancellor comes from a business background and should have acted immediately. He knows household debt is dire and that debt repayment holidays and small stimulus packages are needed to keep businesses afloat. He thinks like a politician, not a businessman,” he said.
He said the companies most in need of support were car manufacturers, whose supply chains had shrunk by 23 percent, adding that other struggling sectors included rubber, cassava and sugar.
Half of export clusters have also shrunk and supply chains will wither without government intervention, he noted.
While waiting for the introduction of digital wallets, the government should come up with programs to stimulate public spending and increase production. Companies operating at 50-60 percent of their total capacity will not be able to retain employees, he said.
“Can the government also suspend debt repayments for a year? This is a short-term measure. As for digital wallets, the government should allow them to be used anywhere, not just at convenience stores,” he said.
Tanit: Export sector remains weak
Deputy Finance Minister Paophum Rojanasakul said the ruling party has always maintained the country was facing economic stagnation and the digital wallet grants were aimed at waking the economy up.
Paopum cited three factors as the cause of the economic downturn: delays in implementing the 2024 budget, the ineffectiveness of economic stimulus measures due to declining private sector confidence and consumer restraint in spending, and a reduction in lending, especially to small and medium-sized enterprises.
“In essence, the fiscal sector lacks ammunition and the financial sector, despite having the ammunition, is refusing to use it. As a result, banks are cautious about extending loans. All these factors have led to the country’s economy slumping,” he said.
State funds are being pumped in
Paopum said the 2024 budget was finally passed after long delays, injecting funds into the system.
In addition, measures are currently being implemented to accelerate investment in state-owned enterprises, which meet 95% of the government’s target.
The 2025 Budget is due to take effect in October this year, which, combined with the introduction of the digital wallet scheme, will inject further funding into the system.
Regarding foreign capital outflows, the deputy finance minister said falling consumption and slowing production rates had made Thailand less attractive.
He acknowledged that political stability was also a factor in businesses’ decision-making. He expressed confidence that the government was on the right path to address the economic challenges, with a series of fiscal measures in place, including tax incentives, low-interest loans and future loan guarantees.
Central banks must play their role
He said the government needs the cooperation of the Bank of Thailand to implement its policies, stressing the need for interest rates to be lowered.
“We have remained steadfast in the need to cut interest rates, which are out of proportion to the state of the economy. With inflation currently at 0.6-0.7 percent, below the 1 percent lower bound, interest rates look higher than they should be.”
Paopum added that the economy is poised to get back on track especially in the second half of the year, with long-awaited reforms in the pipeline including the virtual banking project, upgraded credit guarantees and a retirement lottery policy.
Paopum: Banks cautious about expanding lending