The Thai economy is bearing the brunt of the political impasse, and concerns are high for the impact on 2014 growth if the conflict continues to distract the government from improving the business environment.
Bank of Thailand Governor Prasarn Trairatvorakul yesterday also expressed worries over the impact of a possible political vacuum on the economy, voicing particular concern about the slow disbursement of the fiscal budget. More important, government is a key mechanism to drive the economy and its absence could dent gross domestic product next year, the governor said. When it convenes on January 22, the central bank’s Monetary Policy Committee is expected to lower its 2014 GDP growth target of 4 per cent, after the unanticipated dissolution of the House of Representatives.
Moody’s Investors Service yesterday also expressed concern over the impact on the Kingdom’s sovereign rating, should the problems continue after the election scheduled for February 2. While prolonged protests will weigh on an already fragile growth outlook for 2014, heightened tensions have marred investor confidence.
Participating in a teleconference from Singapore yesterday, UBS economist Edward Teather said political risks would constrain Thai economic growth if the newly elected government cannot assume work within a few weeks of taking office. Though economic activity continues despite the protests, a big question remains on whether the political conflict will allow the economy to grow.
“More broadly, we remain concerned that the continued focus on constitutional amendments and amnesty arrangements arising from prior political conflicts, in addition to ongoing court challenges and protests, are distracting the government from working to improve Thailand’s business environment,” he said.
After the House dissolution, uncertainties remain on the water management and infrastructure projects, which had been expected to contribute 0.5 percentage point of growth to GDP next year.
Meanwhile, on the external front, the recovery in the US economy has convinced analysts that the Federal Reserve’s quantitative-easing programme will be tapered early next year, which would prompt outflows from Thailand. UBS expects the baht to weaken to 33 to the US dollar next year and 34 in 2015. Foreign investors yesterday dumped more Thai shares. Yesterday’s net selling of Bt3.5 billion left cumulative net buying for this month at Bt29 billion. The SET Index is down 1.62 per cent from its end-2012 level.