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24 May 2010

Thai Economy

19 May Unrest to Plunge 2Q10 GDP to Contraction of Over 5 Percent QoQ (Business Brief No.2828)

Although Thai economic growth in 1Q10 reached the highest level in 15 years at 12.0 percent YoY, the escalating clashes amid mass rallies beginning on March 12, 2010 and ending on May 19, 2010, with the military crackdown at Ratchaprasong intersection may dampen Thailand's 2Q10 GDP figure to contract over 5 percent (seasonally-adjusted quarter-on-quarter) because the crackdown drove some resentful protesters to set fire to buildings located in the business district of the Thai capital. Nevertheless, 2Q10 GDP performance still posted growth YoY due to the low base effect of last year, but it may decelerate to only 2.5-3.5 percent.
The outlook for 2H10, a restoration of the confidence of foreign tourists and investors toward Thailand may take several months because the recent unrest was broadcast in news features worldwide and was the worst Thai political discord in modern history. There is also lingering political uncertainty ahead.
Hence, KASIKORN RESEARCH CENTER (KResearch) estimates that the riots may cause economic losses of at least THB138 billion. The political uncertainty will need to be monitored because it may affect economic activities throughout 2010. When adding in the previous losses caused by the political crisis (before the crackdown), KResearch expects that the unrest may cause overall loss of around THB233-365 billion. KResearch projects that Thai economic growth in 2010 may be 2.6-4.5 percent. In our base-case scenario, the GDP may rise 3.9 percent.
Estimated Losses Caused by Political Unrest (THB Millions)

Base Case
Worst Case
Ÿ March 12 –May 18, 2010:
- Impact on tourism, trade and business at Ratchaprasong and elsewhere
Ÿ May 19-20, 2010:
- Impact on buildings and others assets (arson by rioters)
- Impact on tourism-related income over 2010
Ÿ Indirect Losses
- Impact on domestic consumption and private sector investment, etc.
Total Losses (THB Mil.)
% of GDP
GDP growth in 2010 (%)
Source: Estimated by KResearch
Because of those impacts, the government should put some emphasis on healing the wounds of all involved or affected by this crisis. In the short-term, it will be necessary for the authorities to maintain accommodative monetary and fiscal policies for a while to support the economic recovery. In addition, related government agencies should seek to restore our image, seek understanding toward our domestic situation and arrange activities to promote tourism and domestic spending.

Nevertheless, such measures may not be effective if the political divisions remain. As a result, the authorities should first restore peace to our country by undertaking their reconciliation road-map, allowing all parties to take part in finding solutions to this conflict. This will be a key factor that could help boost economic stability for our country.

Thai Economy