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Recovery of vulnerable Thai economy may be hit

Publication Date : 12-12-2013

 

Thailand's prolonged political unrest, which is taking place right in its peak tourist season, looks likely to take its toll on the economic recovery this year.

The Thai stock market rallied briefly after Prime Minister Yingluck Shinawatra dissolved its House of Representatives on Monday, in the hope that snap elections would bring a resolution to the crisis. However, this enthusiasm has dimmed after protesters continued their campaign to topple the caretaker government.

Asean's second largest economy has largely managed to weather the regular bouts of political turbulence that have seized the country since then premier Thaksin Shinawatra - Yingluck's brother - was deposed by a coup in 2006. But this time could be different.

Weak consumer confidence, sluggish domestic spending and slow export recovery had made its economy vulnerable before anti-government protests consumed Bangkok from late October.

"This time round the impact could be more severe, because the economy is on a downward momentum," said CIMB analyst Kasem Prunratanamala.

The protests are the latest round of a long-running contest for power between the country's royalists, elites and middle class, and the rural masses on whom the erstwhile ruling Puea Thai party depends for support.

Thaksin, whose populist policies upset the traditional patronage networks of elites, remains a cult figure in the northeast. This guarantees his parties repeated victories even though he lives in self-imposed exile in Dubai to evade a jail sentence meted out in 2008 for corruption.

For this reason, the leaders of the latest protest have refused fresh elections, calling instead for a "people's council" led by a royally appointed prime minister to clean the "Thaksin regime" out the country's political system.

On Monday, protest leader Suthep Thaugsuban demanded that Yingluck resign as caretaker premier.

Yingluck has refused, saying the law requires her to remain in place until elections on February 2. This has raised the chances of a prolonged deadlock, as the opposition Democrats, who quit Parliament en masse to join the protests, may boycott the polls.

The extended uncertainty is bad news for consumer confidence, which hit a 20-month low in October on the back of rising household debt.

Meanwhile, the country has trimmed its growth forecast in the light of a weaker than expected export recovery after a technical recession in the first half of the year. Last month, government think-tank National Economic and Social Development Board cut its full-year growth forecast to 3 per cent, down from 3.8 to 4.3 per cent it projected in August.

Before the protests, tourism was one of the bright spots, with a record 21.7 million visitors from January to October giving a boost to hotel, food and beverage and logistics sectors. But that key driver of growth has also been hit as spooked tourists head elsewhere.

Association of Thai Travel Agents president Sisdivachr Cheewarattanporn said travel bookings have dropped 15 per cent over the past two months.

The House dissolution has added another dampener as it reduces the government's ability to implement previously planned - and much needed - infrastructure projects. The caretaker government will not be able to disburse funds for fresh projects, noted Asian Development Bank economist Luxmon Attapich.

This remains the biggest worry for businesses, said Kalin Sarasin, secretary-general of the Thai Chamber of Commerce and Board of Trade of Thailand. "Our infrastructure network is already running at full capacity," he pointed out. "(Suvarnabhumi) airport, for example, is jammed every day."

 

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