Political Unrest Weighs on Thailand’s Economy

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On April 7, the Constitutional Court of Thailand ordered Prime Minister Yingluck Shinawatra to step down along with all members of her cabinet. Deputy Prime Minister, Mr. Niwattumrong Boonsongpaisan, is assigned to become the acting prime minister in her place. This result is considered a success for the opposition movement after six months of antigovernment protest.

The country’s political gridlock has struck a blow to Thailand’s financial markets, with stock prices falling drastically on Thursday following the removal of Mrs. Yingluck by court order. Both Moody and S&P also ranked Yingluck’s dismissal as a “credit negative” event, which caused the country’s main equity index to decrease by a further 1.7 percent and the baht to depreciate by 0.3 percent against the dollar.

The World Bank projects the Thai economy to grow by three percent in 2014, with subdued consumption and investment. Household consumption is also expected to decline as people are concerned by the impact of domestic political turmoil.

Adding to the country’s woes, large public investments have continue to be delayed as foreign and domestic investment decisions worth about US$15 billion have been deferred because the government’s Board of Investment has been unable to meet.

RELATED: Thailand Investors’ Confidence Report

However, some financial analysts have said that Thailand’s markets appeared to be relatively relaxed in the face of this political unrest. “The fundamentals are bad, but a lot of people say ‘We have seen this movie before. Why is this different?’” commented Eric Stein, co-director of global fixed income at Eaton Vance Management.

Thai exports are projected to accelerate along with the recovery of the global economy, resulting in a higher trade surplus, around 3.5 percent of GDP, and a lower current account deficit as trade picks up with Thai’s major export markets, such as the United States and the European Union.

“The unrest has had a minimal impact on shipments and most exporters are still confident about business,” remarked Nopporn Thepsitthar, Chairman of the National Shipper’s Council.

Despite this positive trend, tough times remain on the horizon for Thailand’s economy. “Chances are, we are going to see another technical recession in the economy, given that the second-quarter GDP number is likely to be rather poor,” said Gundy Cahyadi, a DBS Bank economist in Singapore.

“The longer the economy is without a functioning government, the more the drag to economic growth,” he concluded.

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