While the Thai economy had been pressured by global geopolitical tensions leading up to the National Economic and Social Development Council's decision last week to revise down the upper range of its growth forecast to 3.2% from 3.5%, the business sector also has to keep a close eye on the stormy domestic political climate as it could lead to a critical juncture for the country, which is still undergoing rehabilitation.
The opposition parties submitted a petition on Aug 17 seeking the Constitutional Court's ruling on the legitimacy of Prayut Chan-o-cha's premiership, as it is concerned Gen Prayut's rule may exceed the eight-year limit for the position as laid out in Section 158 of the 2017 constitution.
Even though political experts believe there is a slim chance Gen Prayut could be deposed, as the timeline for the next general election in 2023 draws near -- when the current government will complete its four-year term -- such an incident could create more turbulence for the Thai economy.
CONFIDENCE SHAKEN
The Federation of Thai Industries (FTI) is concerned over business confidence in the country, regardless of the outcome of the court ruling on the eight-year tenure of Gen Prayut.
If the court hands down a verdict in favour of the opposition party which claims Gen Prayut's eight-year term limit should end on Aug 23 this year, efforts to restore the reeling economy may be affected.
If the court rules against the petition, a new round of political conflict sparked by disgruntled opponents could erupt, dealing a blow to business sentiment.
There are many groups which dislike the current administration. If they stage a rally against the government, the conflict may have a ripple effect on the economy.
"Politics always has a positive or negative impact on investments and especially business sentiment," said Kriengkrai Thiennukul, chairman of the FTI.
The prospect of political uncertainty emerges in the lead-up to the Asia-Pacific Economic Cooperation (Apec) summit when leaders from the 21 Apec member states meet in Bangkok later this year.
This is another issue Thailand has to take into consideration, said Mr Kriengkrai.
If Gen Prayut cannot maintain his premiership, the FTI is afraid there may be some impact on efforts to drive up economic growth.
It is hard to say what will happen next, but the business sector always wants to see society maintain peace as the Thai economy is on a recovery track, said Mr Kriengkrai.
According to the FTI, the Thailand Industry Sentiment Index (TISI) rose for the second consecutive month to 89 points in July from 86.3 points in June.
The increase was attributed to more production and purchase orders to meet higher demand for goods in domestic and overseas markets.
The easing of lockdown measures in China also benefitted Thai exporters.
Political issues are among the concerns raised by 1,238 companies under the FTI's 45 industrial clubs when their opinions were sought to compile the July TISI.
The respondents listed the global economic situation as their leading concern (72.2% of votes), followed by domestic politics (40.3%) and loan interest rates (35.5%).
UNFAVOURABLE BUSINESS SENTIMENT
Somchai Lertsutiwong, chief executive of Advanced Info Service (AIS), the country's largest mobile operator by subscriber base, said political uncertainty or instability is not good for business sentiment and the macro economy.
Various industries have now taken a hit from the drop in purchasing power caused by rising inflation, especially consumer product suppliers that have seen a decline in sales, he said.
"Even food seasoning is now experiencing a drop in sales, particularly in provincial markets. This reflects that people now focus more on necessary products first," said Mr Somchai.
In terms of the telecom business, all operators are facing a decline in their profit margins due to tough competition in the segment, he said.
Mr Somchai said he still does not see any signs of economic improvement before the next general election, which is expected to take place at least seven months from now.
He said he has yet to see any key projects during this transitional period that would substantially benefit people while the debt burden is increasing.
Political parties in both government and opposition camps are now focusing on tasks that make sure they have the upper hand in their future interest, he said.
SLIGHT IMPACT
Sanan Angubolkul, chairman of Thai Chamber of Commerce, said the looming political instability is unlikely to have much of an effect on the pace of recovery of the country's businesses and economy, pointing out that the domestic economy is recovering on a gradual basis, propelled by robust exports, improving tourism and a strong Thai business sector.
"No matter what the outcome [on the ruling of the legitimacy of Prayut Chan-o-cha's premiership] is, the parliament and cabinet still exist. We may have a new prime minister, but the cabinet remains the same and continues to function," he said. "Protests outside parliament may transpire if it is ruled that Gen Prayut stay on, but it is believed that the protests would not be severe and become violent."
According to Mr Sanan, despite a myriad of risk factors, from the world's geopolitical tensions, the ongoing Russia-Ukraine war, and high inflation to rising interest rates in several countries, including Thailand, the Thai economy is expected to grow further in the third and fourth quarters. However, it is still important to be cautious when it comes to spending and investment, he said.
Wallaya Chirathivat, chief executive of SET-listed retail and property developer Central Pattana Plc (CPN), said political stability may be one of the key factors that help strengthen a country's economic conditions, but the company does not consider such a political factor to be a priority when deciding whether or not to continue or stop its investments in Thailand.
She said CPN remains strongly confident in Thailand's economic fundamentals and its growth prospects.
"CPN has never stopped its investment since the first day of the company's establishment 42 years ago, no matter whether the country's domestic political situation is stable or not."
Somphol Tripopnart, chief shopping centre business officer of MBK Plc, said given MBK's location, it has suffered impacts from several political rallies, but such an impact tends to be short-lived.
"We don't consider politics to be a risk," he said. "No matter who runs the government, our business still moves on and we have tried our best to become competitive and survive. For MBK, the pandemic is our biggest concern now that our main target customer group is foreign tourists,'' Mr Somphol said.
POLITICAL UPHEAVAL
Tim Leelahaphan, an economist at Standard Chartered Bank (Thai), said the bank expects rising political upheaval during the remainder of this year amid several internal political issues.
However, such political conflict occurs regularly, and some issues ended while others continue. Therefore, political risk does not matter now, he said.
"We see political risk appears low for now, but the noise is likely to rise amid several political issues. The bank always talks with foreign investors about Thailand's economic outlook and domestic political factors, but foreigners don't have any issues regarding political concerns in the country," he said.
The bank anticipates that Gen Prayut would become a caretaker prime minister if there were any political transition. In the event of a change in administration, it could impact the economic recovery trend temporarily in some areas, such as fiscal budget disbursement, government spending, or public investment.
Mr Tim said the Thai economy has been picking up, which has been attributed to several positive factors including a rise in foreign tourist arrivals, improving private consumption and healthy exports. However, government spending and public investment have been slowing down. If fiscal policy continues to support an economic rebound through government spending and public investment, it would strengthen the recovery momentum, he said.
POLICY UNLIKELY TO CHANGE
Stock market analysts have played down any potential impact from the ongoing political uncertainties, saying a representative from the same political party would be named acting prime minister as political parties are now gearing up for the next election.
And even if another political party wins the election, they believe economic policy would not change much.
Meanwhile, elections will boost the economy in the short-term and statistics show stock indices normally go up two to four weeks before an election.
At present, the major factors directly affecting stock market sentiment are mainly external, such as interest rate hikes, inflation as well as the growth of the world economy, they said.
Therdsak Thaveeteeratham deputy director of research at Asia Plus Securities (ASPS), said no matter what the outcome is, the dissolution of the country's parliament is likely to happen after Thailand completes its role as chair of the Asia-Pacific Economic Cooperation (Apec) by the end of this year.
Then Thailand's politics would focus on the new election in the first half of next year.
There would have to be some capital spending on advertising campaigns, while visits by politicians to address the public would help stimulate local economies.
In addition, for three to six months after a government takes office, which is known as the honeymoon period, the investment climate is normally good.
Mr Therdsak believes that the next election will usher in a new coalition which will form a coalition government.
Mr Therdsak said that no matter which party leads the next government, economic policy should not change much because doing so would affect foreign investors' confidence both directly and indirectly.
He said the new government should maintain fiscal policy discipline as Thailand has maintained financial fiscal stability to date.
He said that as the Covid-19 situation has eased, the tourism industry will be a key driver to propel Thailand's economic recovery for remainder of this year.
Nonetheless, the political issue will be a short-term factor affecting market sentiment amid the improving economic situation and significant growth of listed companies' net profits.
Mr Therdsak said under the current economic conditions, economic stimulus measures are still necessary and have to be continued as inflation remains high. ASPS expects that Thai inflation will start to decline gradually next month.
"In the second quarter of 2022, net profit reported by listed companies was better than expected while interest rates have been on an upward trend. That caused fund flows to the Thai stock market of as much as 152 billion baht year-to-date and a net buy of 35 billion baht in August. The outlook for the Thai economy is positive at present," said Mr Therdsak.
ELECTION MODE
Wikij Tirawannarat senior vice-president of Bualuang Securities, said that normally the stock market goes up before elections because of money circulation in the short term as political parties spend money on their election campaigns.
Mr Wikij said political parties' economic policies would basically focus on global trends such as electric vehicles (EVs) and the green energy push. Stocks in the tourism and industrial sectors would be among the biggest beneficiaries of those policies.
If the prime minister has to leave his post on Aug 23 or dissolve parliament, Mr Wikij believes an acting premier from the same party or same coalition would be appointed. Therefore, the stability of the government is unlikely to be affected.
Mr Wikij said economic stimulus measures are still required, such as phase 5 of the "Khon La Khrueng" co-payment subsidy scheme, which has just been launched, as well as other measures that could boost consumer spending and short-term measures to help people who have been suffering from the effect of high inflation.
He pointed out that the government has to be particularly cautious about high household debt because it would push up non-performing loans (NPLs).
That could lead to problems in the banking sector. The current account situation and inflation figures have to be monitored, too, he said.
Nuttachart Mekmasin, research manager at Trinity Securities, said Thai politics is entering election mode again.
However, the Prayut administration has been in power for eight years, which is quite a long period of time.
He predicts the Thai situation after the election could be similar to a situation in the US after mid-term elections if an opposition party got the majority of votes.
The Prayut government has a rather conservative view, while its measures to stimulate domestic consumption have not been very effective.
Foreign tourist arrivals have remained low to date, meaning that economic growth had not recovered significantly in the second quarter, he said.
In Mr Nuttachart's view, if the Palang Pracharath party does not win the next election, the stock market may rise more than if it wins because investors are waiting for new policies to be launched.
LOOKING ON THE BRIGHT SIDE
Chamnan Srisawat, president of the Tourism Council of Thailand (TCT), said even though there could be an impact from the political upheaval, the tourism industry would only experience a minor impact as it can quickly adapt to fast-changing situations.
If there is an impact from the Court's ruling which results in a change in the political landscape, such as a dissolution of the House of Representatives, he believes most tourism operators would be able to brace for any changes triggered by political issues as long as there is still demand to travel.
"An influx of tourists since the full reopening in July already proved that this industry is quite flexible and unfazed by negative impacts as well as seeing robust domestic trips from people seeking to make merit or go to temples amid a stagnant economy," said Mr Chamnan.
He said if a general election came earlier than expected, it could provide even better prospects for the tourism sector as election campaigns by political parties would require that they must travel nationwide.
From his personal experience, domestic consumption would receive a tremendous boost before a general election as parties have to spend a fortune on campaigning activities which would generate a number of large-sized gatherings.
However, if the government is able to remain in power, this would not be any worse or any better as he believes the premier has already done his job in creating a good plan. The only flaw was the implementation, which has yet to be successful in most cases.
