BANGKOK, June 7 (Reuters) – Thailand’s economy is expected to grow 3.0% to 3.5% this year as the tourism sector gathers strength but exports remain sluggish, a leading joint business group said on Wednesday, as businesses await the formation of a new government after May’s election.

Exports are forecast to be flat or fall by 1% this year, while 30 million foreign tourists are expected in 2023, said the group, which has representatives from industry, banking and commerce. The economy expanded 2.6% in 2022.

While Southeast Asia’s second-largest economy remains on its recovery path, driven by the tourism sector, slowing global growth continues to affect Thai exports, which contracted for seven straight months, the group said in a statement.

“If exports don’t recover, other related industries will also be hit,” it said.

The business sector is also concerned about higher interest rates and inflation, particularly if wages are raised in the future, the group said.

A hike in the daily minimum wage to 450 baht ($12.95) promised by the election-winning Move Forward party would increase inflation by 0.82 percentage point, the group said.

Prime ministerial frontrunner Pita Limjaroenrat has formed an alliance with seven other parties but faces an uphill battle in wooing members of an unelected Senate to back him in a legislative vote on the premier, which is expected by August.

Kriengkrai Thiennukul, chair of the Federation of Thai Industries, said any delay in the formation of the next government would dent investor confidence and could lead to street protests, which would affect tourism.

“If there is a protest, some 30 million tourists expected this year may disappear and GDP could grow just 1-2% this year, with the impact continuing into next year,” he told a press conference, referring to gross domestic product.

Foreign investors might shift their production bases elsewhere if the government formation takes longer than a few months, Kriengkrai said.

($1 = 34.76 baht)

Writing by Orathai Sriring; Editing by Martin Petty, Kanupriya Kapoor

Our Standards: The Thomson Reuters Trust Principles.