Back to the future: Thailand likely again to face political stalemate

April 2, 2019

BANGKOK - Thailand elections on March 24 still await official results, but observers are already cautious on the implications for the new Government in making decisive choices.

The Opposition is said to need 376 votes in the lower house (250 seats in the upper house are appointed by the military) to form a functioning Government and appoint a Prime Minister, but is likely to fall short of that.

However, says Natixis in a research note, the Opposition is likely, with its 7-party coalition, to have enough votes to block legislation.

Meaning that Thailand is headed towards a political deadlock even before the results are finalised.

Natixis says: "This is bad news for the country as it more than ever needs a decisive Government to deal with weakening global demand, fierce competition, deteriorating demographic trends (both contracting working age population and declining total population), high household indebtedness, and lack of diversification on sources of growth.

"Thailand's growth rates in recent years has been buoyed by a push for infrastructure investment, consumption and a rise in tourism, especially the rise of inbound Chinese tourists.

"Meanwhile, Thai exports have been languishing, and Thailand's global market share of exports has deteriorated as both a strong baht and lack of policy direction limited competitiveness.

"As Chinese inbound tourists has slowed (tourism made up 12.5% of GDP and Chinese tourists contribute one-fourth of that) due to worsening domestic conditions, Thailand is vulnerable.

"European tourists are slowing, too, as the region loses steam. Meanwhile, a deadlocked Government would mean that the Opposition can take steps to blunt the infrastructure push, limiting its key sources of growth."

The Natixis report says that, while Thailand is likely to be capable of dealing with short-term volatility in global demand well, thanks to its ample savings and current account surplus, its worsening demographics will inevitably see downward pressure on growth.

"Thai households, especially rural ones, are already stressed from high household debt. The burden of an aging economy will likely mean that Thailand will be old before it can escape the middle-income trap."