Thailand Political Unrest: Economy May Shrink By 1.2% Q4 If Tension Continues

 @SophieXSong
on December 06 2013 11:28 AM
Thailand
Anti-government protesters hold candles as they take part in birthday celebrations for Thailand's revered King Bhumibol Adulyadej, at the occupied government complex in Bangkok December 5, 2013. REUTERS/Dylan Martinez

Thailand’s political unrest is likely to erase the nation’s already small expansion margin – experts project GDP growth in the fourth quarter to be a depressing minus 1.2 percent year-on-year, due to bad net exports, declines in tourism receipts and a drop in private investment and consumption spending.

The Southeast Asian nation has been embroiled in political protests and tensions for much of the last month, after the government tried to push through an amnesty bill that would have allowed the exiled brother of current Prime Minister Yingluck Shinawatra to return to Thailand without penalty. The unrest intensified last week when protesters clashed with government supporters, leaving at least three dead.

This is terrible news for Thailand’s already weak domestic economy, a research note from Nomura published on Friday said. Analysts were expecting Q4 GDP growth to slow down to 1.4 percent, from 2.7 percent in the third quarter. This year in general has not been a good year for the Thai economy, due to delays in the government’s investment spending plans, weakening domestic demand and the disappointing recovery in exports, especially in contrast with other regional exporters like Singapore, South Korea and Taiwan.

And now the continuing political unrest is likely to affect all demand-side components of GDP adversely and relatively quickly. Specifically, domestic demand will deteriorate even further with weakening private sector sentiment, which was already down to 47.4 in October before protests started. In March the reading was at a high of 54.4. In 2008, during an airport shutdown, this index plummeted to 35.

Private investment spending, which is highly dependent on government outlays, could suffer too as the occupation of government offices including the Ministry of Finance will interrupt the delivery of public services and the disbursal of funds. There is now great doubt that the government can push ahead with its water management projects and big infrastructure projects, the Nomura research note said.

Both Moody’s and Fitch credit rating agencies have warned that Thailand's political climate could hurt its fiscal and credit profiles and exacerbate potential pressure from an eventual tapering by the U.S. Federal Reserve.

Tourism, which should be in its peak season right now, could also suffer as more countries issue advisories against traveling to Bangkok. There have been 34 such warnings as of this week.

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