News / Asia

Confidence in Thai Economy Slumps Amid Political Turmoil

Anti-government protesters eat dinner outside a McDonald's restaurant in central Bangkok. Protesters occupy the same shopping and business districts, Feb. 6, 2014.
Anti-government protesters eat dinner outside a McDonald's restaurant in central Bangkok. Protesters occupy the same shopping and business districts, Feb. 6, 2014.
Ron Corben
— Business confidence in the Thai economy has slumped to its lowest levels in more than four years amid the nation's ongoing political turmoil. A senior World Bank economist said recovery is still possible over the year's second half, if political tensions ease and public and private sector spending resumes.

In its latest indicator released Thursday, the Federation of Thai Industries warned Thailand's ongoing political turmoil had triggered a dramatic loss of confidence, with surveys showing indices at their lowest since June 2009.

Loss of confidence

The Federation pointed to a decline in overall domestic orders, sales volumes, production output as well as poor business performance.  Analysts say private sector investors are holding back until the political situation clears.

World Bank senior economist Kirida Bhaopichitr said an easing in political tensions is needed for the economy to reach a four percent growth rate by year's end.
 
Also the government is struggling to make payments in a controversial rice price pledging scheme. At present, thousands of farmers are still to be paid some $4.2 billion.

"Our assumption is that the political unrest will end in the middle of the year. So if it does not, the four percent will not be reached. Farmers will be paid their 130 billion baht in the pledging program by the end of the first quarter. So if they are not, then their consumption will be affected," said Kirida.

State-owned think tank, National Economic and Social Development Board (NESDB), reported the economy growing in the December quarter at just six-tenths of a percent, leaving 2013 growth at under three percent, well down from six-and-a-half percent in 2012.

Political turmoil

The slower growth came as anti-government protests in November started to affect local demand and tourism. Tourism officials say losses could amount to as much as $322 million.

The protests have evolved into demands for Prime Minister Yingluck Shinawatra to resign, amid calls for political reforms.  

Other economic concerns include central bank warnings over a sharp rise in household debt.

The World Bank's Kirida said income disparities between Bangkok and the provinces need to be addressed to reduce inequalities and, in turn, ease underlying political tensions. "If you want to resolve this political tension in the future, and at the same time help Thailand to grow inclusively, issues of inequality have to be resolved. Only if everyone in Thailand can participate in growth, it's very difficult for Thailand to actually move up the value chain and become a high income country," he stated.

Akio Egawa, a researcher on the Thai economy from the Tokyo-based Economic and Social Research Institute (ESRI), said slower rates of growth of less than four to five percent also undermine Thailand's efforts to lift the economy towards higher earnings and higher productivity.

"Thailand must grow at four/five percent. Otherwise, Thailand will fall into the income trap. But in the current situation the government cannot make an effort to raise the economic growth rate and that's a problem. The very low growth rate is due to the political conflict. So the political conflict must be eased and that cannot be solved easily," said Egawa.
 
Thailand remains in the grip of uncertainties as the government faces legal challenges on differing fronts. So far, efforts to broker a negotiated settlement between the government and protesters have failed, leaving the country on an uncertain path forward.

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