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SCB EIC Cautious of Potential Risks to Foreign Investment

SCB EIC Cautious of Potential Risks to Foreign Investment

SCB EIC, a research center affiliated with Siam Commercial Bank, has raised concerns about the escalating political risks that could potentially hinder foreign investment in Thailand’s financial and capital markets, as well as long-term foreign direct investments.

Highlighting how various political uncertainties might erode foreign investor confidence, Somprawin Manprasert, the chief economist at EIC, warned of significant capital outflows by offshore investors from the Thai equity market.

The internal political challenges could also impact the government’s economic strategies, leading to increased uncertainties and decreased business sector confidence, explained Mr. Manprasert.

The recent release of former Prime Minister Thaksin Shinawatra on bail by the Criminal Court following charges related to lèse-majesté and computer crimes in connection with statements made during a 2015 interview has added to political tensions.

EIC anticipates that the Bank of Thailand will initiate a policy rate cut in the fourth quarter of this year, expecting a 25-basis-point reduction to 2.25%, followed by a further decrease to 2% in early 2023. This assessment is bolstered by upcoming economic stimulus measures, noted Mr. Somprawin.

Revising down its Thai GDP growth forecast for 2024 to 2.5% from 3%, EIC foresees growth driven primarily by the service sector and a notable resurgence in foreign tourist arrivals.

EIC has also adjusted its projections for various economic indicators in the current year, including a decrease in government consumption growth from 3.3% to 1.4%, private investment growth from 4.4% to 3.6%, public investment growth slipping from 2.2% to a contraction of 0.5%, and export growth lowering from 3.7% to 2.6%.

Mr. Manprasert highlighted the structural obstacles confronting Thai economic growth, citing factors such as limited expansion in merchandise exports, partly influenced by the declining correlation between Thailand’s export recovery and global trade volumes. This year, declines are expected in the export of steel, fruit, and hard disk drives.

Despite a noteworthy acceleration in the disbursement of public investment funds after a more than six-month delay in passing the 2024 budget bill, EIC believes this may not completely offset the contraction observed in the initial four months of the year.

Mr. Somprawin noted, “Thai GDP growth is projected to rebound in the second quarter of this year compared to the first quarter. However, growth in the latter half of the year is expected to ease, exerting pressure on private consumption due to increased vulnerabilities in the household sector.”

EIC forecasts Thailand’s GDP growth to reach 2.7% next year.

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