Thailand’s economy and markets around elections
- The GE will be a heated one, and an undecisive result could pose near-term downside growth risks
- Growth on average cooled before elections and recovered thereafter
- Fiscal spending was typically robust pre-elections but eased sharply a quarter after the polls
- Inflation cooled before the elections and picked up thereafter
- Portfolio investment flows were usually choppy; direct investment flows recovered post-votes
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2023 general elections and key changes
Thailand will hold general elections (GE) on 14 May 2023 after Prime Minister (PM) Prayut Chan-o-cha dissolved the House of Representatives (Lower House) on March 20, ahead of the end of the government’s four-year term on March 23.
500 members in the Lower House will be elected. Changes to the election laws that took effect in Jan 2023 are seen to benefit larger political parties, given their ability to field more candidates. First, 400 seats will be constituency members of parliament (MPs) and 100 will be party-list (vs 350 and 150, respectively, in the 2019 elections). Second, each voter will vote for a constituency MP and a party in a separate ballot (unlike in 2019, where only one vote was cast by each voter to determine both constituency and levelling seats).
Political parties to watch
A sizable number of political parties will be contesting, with the opposition currently standing out from military-linked ones, including the incumbent. Opinion polls conducted in early to mid-March from the National Institute of Development Administration (NIDA) and Suan Dusit before the Lower House’s dissolution suggest that opposition Pheu Thai (linked to former PM Thaksin) is in the lead as the preferred party. This is followed by Move Forward, and United Thai Nation (a new party, which PM Prayut has moved to, with success still to be seen). Palang Pracharath has lagged in the opinion polls but remains a key party to watch. It came in second in the 2019 GE, and subsequently formed the coalition government. PM Prayut was its previous leader, and it has ties with the military junta that ruled Thailand post the 2014 coup.
Thailand’s election outcome remains very fluid, and could turn out differently from the opinion polls, in our view. Preliminary election results would likely be available on the same day of the polls, but official results might take up to 60 days (until July) to finalise. An undecisive result could pose downside risks to the near-term growth outlook. First, there could be delays in forming the new government due to the prolonged time needed to agree on a coalition, hindering policymaking. Second, any large-scale protests following the elections – that were seen previously – could also disrupt economic activity.
We, therefore, stick to analysing Thailand’s economy and market performances surrounding the elections, without predicting the election outcome in this analysis. We specifically look at the trajectory of growth, fiscal, inflation, investment flows, and currency performance in the quarters before and after the elections to identify potential cycles.
We evaluate four elections from 2007 in this event study, which cover the period just prior to the Global Financial Crisis (GFC) and just as the COVID-19 pandemic began. The elections (2007, 2011, 2014, and 2019) occurred under varying domestic and external conditions. Thailand also experienced military coups in 2014 after the elections (with the constitutional court eventually invalidating the 2014 results), and before 2007. We average the various indicators, and consider the volatility around the data’s average to tease out trends that occurred during election seasons.
Real GDP growth
Thai economic growth trended lower on average prior to the country’s elections. Real GDP growth bottomed one quarter after the event before recovering over the next two quarters. The slower expansion before the polls was driven by moderating private consumption and investment growth. Government consumption growth was historically resilient ahead of the elections amid political and election spending. It cooled sharply a quarter after the polls before picking up again, as the new administration resumed fiscal spending.
Thailand’s fiscal accounts were in good shape and were broadly balanced in the previous four election periods prior to the COVID-19 pandemic. Thailand is, however, heading into the 2023 GE with stretched public finances, following significant fiscal support provided to cushion the economy from the pandemic. General government fiscal deficit remained wide at 4.6% of GDP as of FY2022, despite narrowing from 7.0% of GDP in FY2021, while public debt jumped to 61.3% of GDP as of Jan 2023, from 41.2% in 2019.
Political parties are wooing voters with populist policies. Proposals include boosting cash handouts to welfare cardholders, expanding the scope and coverage of universal healthcare plan, increasing rice subsidies and funding to support agricultural commodity prices, amongst others. Yet, little details have been provided about funding. We reckon that the newly elected government would find it difficult to fully fulfil the promises given the tight fiscal room.
Looking at central government expenditures growth surrounding elections, an average across four election periods showed that expenditure growth was typically robust ahead of the polls, in line with government consumption trends. Expenditures registered at above 10% YoY up to four quarters ahead of the event before contracting one quarter after the votes, and recovering subsequently as the new administration executed its fiscal plans.
Past cycles showed that Thailand’s headline inflation in year-on-year terms cooled modestly on average prior to the elections. It bottomed out around one quarter before the polls, and picked up thereafter to reach a peak two quarters after the votes. We observe that Thai inflation trends were usually influenced by factors outside the election cycles. Headline inflation fluctuations tended to be at the mercy of global factors such as global crude oil prices, based on our analysis in ASEAN-5: Evaluating key inflation drivers.
We look at investor confidence in Thailand around elections through two forms of investment flows: 1) more volatile portfolio flows that could be driven by global risk appetite and domestic developments, beyond the election cycles; 2) relatively stable direct investments (DI) that are influenced by growth prospects and structural factors such as the business environment and the government’s policy direction. We evaluate the flows in net terms as a share of nominal GDP from the balance of payments (BOP) account.
Net portfolio investment flows: Net portfolio flows were choppy on average, swinging from inflows to outflows surrounding the election periods. The lack of directionality pre-elections suggests that foreign investors adopted a wait-and-see approach given the uncertainty. Post-elections volatility was affected by exogenous shocks, except for 2014.
Net direct investment (DI) flows: Net DI flows on average weakened into the elections, even excluding the 2011 hit from natural disasters. Investors were cautious in investing new capital due to heightened unpredictability over the election outcome, policy continuity, and government transition, with Thailand having a history of unexpected political risks. Net DI flows eventually bottomed out on average one quarter after the polls, and recovered close to the highs seen before the votes.
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