Bloomberg News

Thailand’s Unrest Wreaks Greater Damage Than Forecast

May 19, 2014

Thailand’s political turmoil is wreaking greater damage on the economy than analysts had estimated, raising the stakes for leaders of the nation’s two main political camps to reach an accommodation.

Gross domestic product shrank 0.6 percent in the three months through March from a year earlier, the National Economic & Social Development Board said in Bangkok today, compared to the median estimate for a 0.4 percent expansion in a Bloomberg News survey of 23 analysts.

Thai production and tourism have been damaged by months of unrest, as opponents of ex-Prime Minister Yingluck Shinawatra mounted public protests and legal challenges that succeeded in removing her from office. Today’s report raises pressure on leaders from both sides to find a settlement, with no election date yet agreed to provide a government with a mandate.

“Both private consumption expenditure and investment growth underperformed our expectations, signaling that the impact from the current political impasse on the economy may have been greater than we had initially thought,” said Gundy Cahyadi, an economist at DBS Group Holdings Ltd. in Singapore. “The prospect of government expenditure remains bleak” and with businesses also unwilling to commit to new investment, the economy may expand less than 2 percent this year, he said.

The Thai baht was little changed at 32.49 against the U.S. dollar as of 10:57 a.m. local time. It is one of the worst performers in the past six months among 11 widely traded Asian currencies tracked by Bloomberg. The benchmark stock index is the only major one in Southeast Asia to have declined in the same period.

Forecasts Cut

Anti-government protesters have derailed plans for a July 20 election and the army has said it may use force to counter any escalation of violence. Yingluck was forced to step down from office earlier this month following a court ruling.

The state planning agency today cut its expansion forecast for this year to 1.5 percent to 2.5 percent from a range of 3 percent to 4 percent earlier, and lowered the export growth estimate to 3.7 percent from 5 percent to 7 percent. Total investment may fall 1.3 percent this year from an earlier prediction of a 3.1 percent increase, it said.

The main reason for the cuts is “political problems, which prolonged more than earlier forecast, and have become a bigger hurdle for economic growth than earlier forecast,” NESDB said in a statement. The formation of a new government will be delayed longer than estimated, posing limitations for any economic stimulus, budget disbursement and the preparation of the fiscal 2015 budget, it said, adding that this has hurt consumer and business confidence and crimped spending.

Exports Slide

Southeast Asia’s second-largest economy has survived coups, natural disasters and downturns in the past, with the last quarter-on-quarter technical recession seen in 2009 after a global economic slowdown led to an exports slump and anti-government protesters shut down Bangkok’s main international airport for more than a week. Overseas sales slipped in two of three months this year, while consumer confidence slid for a 13th straight month in April.

The Bank of Thailand, which kept its benchmark interest rate unchanged in April after cutting it to the lowest since December 2010 the previous month, will reduce its 2014 GDP growth forecast of 2.7 percent in its next meeting on June 18, Governor Prasarn Trairatvorakul said last month.

The outlook on Thailand’s debt rating may be reassessed if the deadlock stretches into the second half, Fitch Ratings said on March 20, and Moody’s Investors Service said last month that a prolonged period of below-trend growth would be credit negative. Thai Airways International Pcl reported a net loss for the fourth consecutive quarter on falling tourist arrivals.

Slowest Growth

Thailand will probably have the slowest growth among its major Southeast Asian peers this year, according to Bloomberg surveys. Malaysia last week reported a better-than-estimated 6.2 percent expansion in the first quarter from a year earlier, while Singapore’s economy probably grew 5.4 percent, a Bloomberg survey showed ahead of data due tomorrow.

The Thai economy contracted 2.1 percent from the previous quarter, when it expanded a revised 0.1 percent, today’s report showed. That compared to a median estimate of a 2.2 percent decline in a Bloomberg survey. Thailand could be the only major country in Southeast Asia to fall into a recession this year, with analysts at DBS Group Holdings Ltd. and Mizuho Bank Ltd. predicting two consecutive quarters of contraction.

Consumption fell 2.1 percent last quarter from a year earlier, while investment dropped 9.8 percent, today’s data showed. Manufacturing slipped 2.7 percent, and construction slumped 12.4 percent.

“As of now, it does seem that the growth momentum is going to remain fairly weak,” said Rahul Bajoria, a Singapore-based economist at Barclays Plc. “The second half is at risk of starting on a much weaker footing” as the political uncertainty persists, with a risk of slipping into a technical recession in the first half of the year, he said.

To contact the reporter on this story: Suttinee Yuvejwattana in Bangkok at suttinee1@bloomberg.net

To contact the editors responsible for this story: Stephanie Phang at sphang@bloomberg.net Rina Chandran, Malcolm Scott


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