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Days after being elected<\/a> as Thailand\u2019s youngest-ever prime minister, Paetongtarn Shinawatra threw cold water on a policy question that had been simmering for months.\u00a0<\/p>\n At a press conference soon after she got the position, Paetongtarn said that a $14 billion stimulus plan<\/a>, a major campaign pledge from her predecessor, needed further review<\/a> to see whether it complied with the country\u2019s laws on fiscal discipline.\u00a0It\u2019s the latest stumble in Thailand\u2019s drive to juice consumption in its economy, faltering under a weaker-than-hoped tourism recovery and slower manufacturing.<\/p>\n Paetongtarn was sworn in as prime minister on Aug. 18, after Thailand\u2019s constitutional court ousted Srettha Thavisin owing to an alleged ethics violation. Srettha was accused of appointing a minister<\/a> with a criminal conviction.<\/p>\n Paetongtarn is the youngest daughter of Thaksin Shinawatra, Thailand\u2019s former (and controversial) prime minister, and the niece of Yingluck Shinawatra, Thaksin\u2019s younger sister who also served as prime minister.<\/p>\n Srettha, also backed by Thaksin, made the consumption stimulus a key part of his campaign in last year\u2019s general elections, and continued to push it as prime minister, calling it<\/a> a \u201clife-changing policy for the people.\u201d<\/p>\n In July, Srettha said<\/a> Thais could start registering on Aug. 1 for the digital cash handout. The program is meant to give as many as 50 million Thais 10,000 Thai baht ($290) in government stimulus through a digital wallet by the fourth quarter of the year. Recipients had to earn less than 70,000 baht a month ($2,030) and hold less than 500,000 baht ($14,500) in a savings account to qualify.<\/p>\n But critics, including economists, former central bankers, and opposition politicians, argued that a direct stimulus that could reach as high as $14 billion would worsen Thailand\u2019s deficit and stoke inflation. In April, Thailand\u2019s budget director warned that the gap for the current fiscal year would widen by $23.6 billion, making up 4.4%<\/a> of GDP.<\/p>\n The threat of legal challenges pushed Srettha to rework the funding model for his stimulus package. Instead of resorting to a one-time borrowing, Srettha instead proposed<\/a> using money from the state budget for its next fiscal year, starting Oct. 1, as well as a supplementary budget from the current fiscal year.\u00a0<\/p>\n But with a new prime minister, the $14 billion stimulus plan could be getting revised again.<\/p>\n Thailand\u2019s economy could use the help. The country expanded by just 1.9% last year, lagging regional peers. The country is Southeast Asia\u2019s second-largest economy, yet it is losing ground to peers like Vietnam and Malaysia, which are aggressively courting manufacturing.\u00a0<\/p>\n That\u2019s partly why Syetarn Hansakul, a senior economist at the Economist Intelligence Unit, thinks that the stimulus will still be coming, though perhaps in a less digital form.<\/p>\n \u201c[The government] received feedback from their grassroots supporters in the northeast who find [getting the stimulus] difficult to do through the official app,\u201d she says.\u00a0<\/p>\n Middle-income and lower-middle-income Thais are struggling and may benefit from the direct stimulus, she says. But she thinks any boost in economic activity will be fleeting, lasting only two quarters at most.\u00a0<\/p>\n The government\u2019s hope that the stimulus will increase GDP by 1.6% is \u201chighly optimistic,\u201d thinks Alexandra Hermann, lead economist for macro forecasting and analysis at Oxford Economics.<\/p>\n \u201cThe digital money can only be spent in registered stores in one\u2019s voting district, with further restrictions on what items the money can be spent on,\u201d Hermann said.<\/p>\n Thailand\u2019s economy is starting to recover, with year-on-year growth of 2.3% last quarter, ahead<\/a> of expectations. The expansion was driven by more government expenditure and exports. Yet Thailand\u2019s Office of the National Economic and Social Development Board noted<\/a> that public and private investments contracted, hinting at underlying weakness in the economy.\u00a0<\/p>\n Syetarn warns that long-term issues could risk Thailand getting caught in the \u201cmiddle-income trap\u201d as it loses out to competition from its neighbors.<\/p>\n Thailand has one of the highest levels of household debt in the region, at 92% of GDP in the last quarter of 2023, and much higher than the 70% recorded over a decade ago. High debt suppresses consumers as households prioritize paying off their loans.\u00a0<\/p>\n The Southeast Asian country might also be paying the price for its overly tourism-reliant economy. Thailand\u2019s growth since the Global Financial Crisis in 2008 has been driven mostly by tourism, even as other sectors shrank, Hermann notes.\u00a0But the COVID pandemic torpedoed Thailand\u2019s tourism sector, which has yet to recover to pre-pandemic levels. The country has implemented initiatives like relaxed visa restrictions to attract tourists again. A possible return of Chinese tourists might also lead to growth.<\/p>\n But the rest of the economy is struggling. Pichai Chunhavajira, the caretaker finance minister, said recently that the economy is \u201cnearly in crisis\u201d because of declining exports and uncompetitive manufacturing. He said<\/a> exports account for 70% of Thailand\u2019s economy, but the manufacturing sector can\u2019t meet demand.<\/p>\n While Thailand is still the region\u2019s dominant car production hub, the rest of the manufacturing sector is still focused on older products, like office machinery\u2014think telephones and printers\u2014still counting as a major export. Thailand\u2019s electronics industry focuses on producing mature chips, meaning it\u2019s \u201cunable to capitalize on the AI-driven boom that has benefited its northeast Asian peers,\u201d Syetarn wrote in a recent research note.\u00a0<\/p>\n Thailand needs more IT and science graduates to take up jobs in innovative industries, Syetarn explains, to help make the country more attractive versus regional neighbors like Malaysia and Vietnam, and move ahead in the race for a share of the advanced chipmaking supply chain.\u00a0<\/p>\n And then there\u2019s uncertainty\u2014exemplified by Paetongtarn\u2019s novel path to the prime minister position.<\/p>\n \u201cPolitical instability is no new thing in Thailand, but it is certainly weighing on investor confidence, both domestic and foreign,\u201d Hermann said.<\/p>\n<\/div>\n\nWhat\u2019s happening with the Thai economy?<\/strong><\/h2>\n
Explore our new special issue.\u00a0<\/strong>A Wall Street legend gets a radical makeover, crypto iniquity, misbehaving poultry royalty, and more.\u00a0Read the stories.<\/a><\/div>\n