Political instability to hit Thai economy


  • Economy
  • Saturday, 19 Sep 2020

Political reforms: High school students saluting with three-fingers – symbol of resistance during a protest rally in Bangkok early this month. Thailand’s economic and market risks heightened following a spike in political upheaval. — AP

CONFIDENCE in Thailand – originally boosted by the country’s admirable management of its domestic Covid-19 outbreak – is waning as political chaos takes centre stage.

Thailand has been touted as one of Asia’s Covid-19 success stories. Infections and deaths, at 3,500 and 58 respectively as of Thursday, are lower than most other Asean neighbours. And signs of a second wave of virus attack are absent.

But this fast control over the dangerous microbe, which could lay solid ground for a quick economic recovery, has been marred by Cabinet instability and anti-government protests that undermine confidence.

A recent survey of investors by the Federation of Thai Capital Market Organisations has highlighted the concerns of the business community and investors.

“The survey in August showed the investor confidence index (ICI) for the next three months (September to November) for all groups of investors dropping 21% into bearish territory.

“Factors pulling down investor confidence included the domestic political situation, the Thai economic slowdown, and the US and European economic situations, ” said the organisation in a statement earlier this week.

In particular, the foreign investor ICI dropped into the “very bearish zone”, added the statement.

Thailand’s economic and market risks heightened following a spike in political risk two months ago.

In mid-July this year, the entire economic team led by former deputy Prime Minister Somkid Jatusripitak resigned.

Somkid, who oversaw the economic stimulus packages during the height of the epidemic, had served in several governments over the past 20 years. Leaving with him were ministers of finance, energy and education.

Although a new team was formed in early August, the new finance minister Predee Daochai – a former banker – quit within a month in office. This has caused chaos to the management of the Thai economy.

Without a finance minister during the current crisis, Thailand’s US$105bil budget bill for the 2021 fiscal year starting next month (October) is likely to be delayed, according to media reports.

In addition, Thailand is now facing continuous anti-government protests by students demanding political reforms that also include the role of the monarchy in politics – a potentially explosive subject in this kingdom where royalty is generally revered.

A nationwide anti-government rally is being planned for today at Thammasak University, a prestigious tertiary institution with a history of student revolts against military rule. There is fear there will be violent clashes and crackdown by the military.

The military has promised it will not stop protesters from joining this rally – reportedly to be attended by 20,000 to 40,000 people, but said it would not be responsible to enforce law and order.

“While the government has begun a crackdown on protesters, we expect a series of extensions to the state of emergency, which was initially introduced to curb the Covid-19 spread, as part of its strategy to rein in opponents, ” said ING’s senior Asia economist Prakash Sakpal in a country report on Thailand on Sept 10.

“History is a good guide to how ugly politics in Thailand can get. It could be a lot uglier this time round as the growing economic suffering of people compounds their anti-government sentiment. If so, this could delay the most coveted, tourism-led economic recovery in the period ahead, ” he added.

Political instability at this time will not do any good to Thailand, especially after the Covid-19 crisis has hit tourism and exports, dragging Thailand into recession.

The country’s second quarter GDP this year posted a sharp contraction of 12.2% year-on-year and 9.7% quarter-on-quarter. It was the steepest GDP fall in Thailand since the Asian crisis in 1998.

ING projects Thailand’s full-year 2020 GDP to contract by 6.6%, the worst year since 1998. It also sees the Thai bath to remain one of Asia’s weakest currencies for the rest of the year due to rising political instability.

“As the key economic drivers of exports and tourism continue to be missing in action, the negative GDP growth trend is here to stay for the rest of the year, and perhaps beyond.With no more policy support forthcoming, GDP could fall even more than our forecast, ” Prakash wrote.

The Thai authorities have also indicated a grim outlook on the Thai economy, with its finance ministry projecting a contraction of 8.5% this year.

On Monday, Siam Commercial Bank’s Economic Intelligence Centre (EIC) revised down its GDP forecast for 2020 to a deeper contraction of 7.8%, from its previous forecast of -7.3%.

One key factor cited was the fall in foreign tourists in 2020, estimated to dwindle to 6.7 million people from 39.8 million in 2019, due to the strict lockdown measures against foreigners.

Tourism accounts for about 20% of the GDP of Thailand – famous for its night life, beaches and hills, as well as food and colorful festivals.

In addition, lower than expected disbursement of money from the government’s stimulus packages could also hamper economic recovery.

The closure of businesses and high unemployment, local political situation, concerns about a second wave of Covid-19 and the poor performance of companies are additional dampening factors.

Also weighing on the speed of the recovery is the drought experienced across Thailand, which is depressing agricultural production and exports.

Thailand’s rice exports fell 14% year on year in the first seven months of this year. The Thai Rice Exporters Association recently cut its export target by 13% to 6.5 million tonnes, according to ING.

Thailand’s large policy stimulus, if implemented in full, may shore up domestic demand eventually, but weak exports and tourism will still hold back the overall recovery, noted Prakash.

“Four Covid-19 stimulus packages (from March to June) worth a total of 14.5% of GDP (2.439 trillion baht) places Thailand among the ranks of the big spenders in this crisis. However, this isn’t much help at a time of collapsing economic confidence, ” said Prakash.

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