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16 Apr 2009

Thai Economy

Political Risk May Cause 2009 GDP Contraction of 3.5-6.0 Percent (Business Brief No.2479)

The political protests that intensified on April 9, 2009, when many thoroughfares in Bangkok were blocked and escalated to chaos during the Songkran holidays caused a great damage to Thailand's image of safety and peace. The situation also exacerbated the Thai economic situation, which has been seriously offered by the global recession. Although the protests and street violence has ended, political conflicts linger. If there is no solution this year, it is a factor that will further reduce confidence toward the country.
KASIKORN RESEARCH CENTER (KResearch) expects that the losses will cause the Thai economy in 2Q09 to contract more than 7.0 percent, as against minus 4.3 percent in 4Q08 and the prior KResearch's projection at -4.5-6.0 percent in 1Q09. The main attributes are the falling income from foreign tourists and Thai consumers' spending during Songkran. Several investment projects have been postponed due to the unsettled economic and political situations.
As for the effect on the aggregate economy over the entire year, previously KResearch had projected that the 2009 GDP growth would probably contract -1.5 to -3.5 percent, but after the impact of the current political strife on tourism, investment and consumer spending is taken into consideration, KResearch expects that Thailand's economy in 2009 will likely contract more than originally thought by around -2.0 to -3.0 percent, causing the GDP to contract 3.5-6.0 percent. Tourism sector income will likely drop THB50-100 billion further. Investment may drop THB34-100 billion because business sector investments may be postponed. Meanwhile, some government sector investments may be postponed because the government may not be able to implement all its economic policies to the fullest.
Consumer spending will likely full under pressures due to lessening confidence and the ineffectiveness of economic stimuli because of the recent political unrest. Greater impacts may be felt among the business sector and employment rate. Furthermore, leading credit rating agencies have begun to reduce their rankings of our creditworthiness; Thai investments are being affected by this political crisis. These two negative impacts may affect the financial cost among the Thai government and private sector. Also, the Baht may depreciate due to weakness in our balance of payments.
Political uncertainty could produce some worse impacts than the above if the situation worsens, such as with further civil disobedience similar to the airport seizures and street violence in Bangkok. This political problem that has been prolonged for many years is gradually eroding Thai economic stability. This will inhibit our development relative to the neighboring countries that still move on steadily. If the political crisis continues in Thai society, it may develop a structural problem, which will halt Thailand's economic development in the long run.
Thai Economic Projection in 2009
(Political Risk Adjusted)
Units: % YoY Unless otherwise stated
2008
Base Case
If Political Risk Intensifies
GDP Growth
2.6
-3.5
-6.0
Brent (USD/Barrel)
97.1
40.0-50.0
Private Consumption
2.5
-1.1
-3.2
Investment
1.1
-6.1
-7.8
Exports
16.8
-16.5
-20.0
Imports
26.4
-19.0
-23.0
Trade Balance (Billion USD)
0.2
4.6
5.4
Current Account (Billion USD)
-0.2
5.0
2.8
Headline Inflation
5.5
-1.0 to 0.5
Core Inflation
2.4
0.0-1.0
Estimated by KResearch, Updated on April 16, 2009

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