Thai political drama inflicts fresh blows on economy

15th April 2009, Comments 0 comments

Political stability must be restored quickly in the next three months to prevent further loss in confidence in investment and tourism, say analysts.

BANGKOK – Thailand's fresh political dramas will inflict huge tourism losses, weigh down the stock market, and crimp growth in an economy already in crisis from the global downturn, analysts said Wednesday.

"The government must work hard to restore political stability in Thailand quickly. The next three months will be critical," said Thanavath Phonvichai from the Thai Chamber of Commerce's economic and forecasting unit.

Anti-government protesters shut down an Asian summit at the weekend and then battled with armed troops in the streets of Bangkok Monday in the biggest test of premier Abhisit Vejjajiva's four-month-old administration.

A successful military campaign to corral the demonstrators and force them to disperse is seen as strengthening Abhisit's hand against ex-premier Thaksin Shinawatra who is plotting to return to power.

But Thailand's stock market will deliver its verdict on his performance when it re-opens on Thursday, after a three-day holiday.

"In general, sentiment will be quite negative across all markets but the recent political shock will probably reflect a more sombre equity market," said Jun Trinidad, a Citibank regional economist.

Trinidad said that a boost for Abhisit reflected in the markets was "a near-term possibility".

"But I don't think that the conflict has ended with the army intervening on behalf of the prime minister. Eventually the issue needs to be settled once and for all," he said.

Thanavath said recent events would cost Thailand's tourism sector another THB 100 billion (EUR 2.1 billion, CHF 3.2 billion) in losses after already taking big hits from past troubles including last year's nine-day closure of Bangkok's airport.

"The political situation has affected the Thai economy, especially on confidence in investment and tourism," he said.

"But the protest ended earlier than we had expected. The government stood firm on peaceful measures and no bloodshed. This is positive and can help the government restore the country's economy more easily later," he said.

In March, Thailand's finance ministry forecast the economy to shrink by two to three percent this year, the first contraction in a decade. Private-sector forecasts are even gloomier.

Trinidad said Abhisit, who unveiled a THB-117-billion stimulus package in January, had been supportive of growth. But he remains hamstrung by questions of legitimacy after coming to power on the back of a court ruling that ousted Thaksin's allies.

"In that span of four months the game plan he has on the economy is very clear and markets were very receptive to it," he said.

"It's not a question of know-how or game plan or lack of resources, it's really an issue now of politics rather than economics.

"It's just unfortunate that this has happened at a time when the economic slump in Thailand is deepening. The timing really sucks."

Julia Goh, an economist with CIMB-GK Research, also said Abhisit's smooth handling of this week's crisis did not dispel his ongoing challenge to unite a deeply fractured society.

"The sentiment is still very much negative because the political uncertainty will continue to linger. So that will continue to be an overhang on growth, and amid the other downside risks from the external slowdown," she told AFP.

"Second quarter GDP is likely to contract and given the recent political events the tourism sector will continue to be affected, hence a delayed recovery," she said.

The research firm had been forecasting a 1.5 percent contraction for the Thai economy this year.

"But given the political events and its impact on the tourism sector we will be downgrading this to around minus 4.0 percent," she said.

Thailand's economic growth had already slowed to 2.6 percent in 2008 from 4.9 percent in 2007.

AFP / Expatica

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