Political Unrest Dragging On The Economy ; Thailand’s real GDP surged by 5.8% year-on-year (y-o-y) in Q409, snapping four quarters of negative growth and confirming a full-year contraction of 2.5%. On our part, we have become slightly more upbeat about Thailand’s economic prospects in 2010, highlighting upside risks to our 3.6% real GDP forecast for the year given the plethora of positive data releases over the last few months.

That said, the as yet unresolved political unrest will be a considerable drag on the economy. We remain wary about the trajectory of the global economy beyond H110, especially as the ongoing eurozone sovereign debt crisis unfolds. Moreover, our global macro team is currently expecting a dip in the US and Chinese economies going into 2011, which would undoubtedly affect Thailand. We are therefore maintaining our projection that real GDP growth will remain somewhat muted at 3.7% in 2011.

A conflict of interest between the pro-Thaksin Shinawatra Red Shirts, anti-Thaksin Yellow Shirts, the military and Thai Prime Minister Abhisit Vejjajiva has severely dented the possibility of a quick resolution to Thailand’s political woes. In our view, Abhisit is running out of time and options to end the ongoing street protests held by the opposition Red Shirts for over two months. Indeed, previous attempts by Abhisit to capture the leaders, move the protestors by force and even offering a road map to elections on November has not been met with much success. With patience likely to be running low on all sides, we fear that Abhisit might be compelled to use force, or the Yellow Shirts might take to the streets, leading to further violence in the coming months.

Regarding policy rates, political uncertainties and benign inflation will keep the Bank of Thailand (BOT ) from hiking rates before Q310.

Indeed, consumer price inflation is still relatively low, coming in at 3.0% y-o-y and 0.6% month-on-month in April. However, given that the producer price inflation has been rising sharply, averaging 11.0% y-o-y and 1.1% m-o-m for the three months ending April, pointing to looming price pressures, we expect the BOT to start normalising policy in early Q310, taking the benchmark repo rate from the current 1.25% to 1.75% by end-2010.

Thailand’s economy is dragged down by the turbulent political situation that has stemmed the flow of foreign investors. More recently, the stalled projects at the Map Ta Phut industrial estate has further dampened investor confidence in the country. Although Thailand scores a decent 62.2 in The business environment rating, ranking it fourth (out of 16) in its regional peer group, we note that this score does not fully take into account the headwinds posed by the political situation and the loss of confidence in Thailand as a preferred foreign direct investment destination.

via Thailand Business Forecast Report Q3 2010 Country Profile.

About the author

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Sign Up for Our Newsletter

Get notified of our weekly selection of news

You May Also Like

Growth in developing East Asia to accelerate to 5.1% says World Bank

Growth in developing East Asia and the Pacific is forecast to accelerate in 2023 as China’s economy reopens, while the pace of growth in most of the economies in the rest of the region is anticipated to ease after a strong rebound last year, a World Bank report said on Thursday.

Thai economy continued to improve from the previous quarter inQ1

The Bank of Thailand (BoT) has announced that the country’s GDP growth in the first quarter of 2023 was stronger than expected, thanks to the continued recovery of private consumption and tourism.

Tax Revenue for Q1 2023 Exceeds Initial Forecast by 13.2%

The Ministry of Finance has revealed that it collected 633 billion baht in revenue during the first quarter of the 2023 fiscal year. The figure surpassed its initial forecast by 13.2%.