Singapore - Deep political polarisation in Thailand since 2006 is adding to structural challenges to the country's competitiveness, said Moody's Investors Service.
Reform delays could eventually negatively affect the sovereign's credit profile, which has largely remained immune to the country's political disturbances, the rating agency noted.
In the report "Thailand: Political Polarisation Adds to Structural Competitiveness Issues", specifically, Moody's views that the coup d'etat of May 2014 has likely, for now, put a floor on deteriorating consumer and investor confidence. But progress in structural economic reform likely hinges on reduced political uncertainty, otherwise competitiveness and economic growth would further erode over the medium term.
Moody's report states that the experience during the recent period of political unrest has shown that Thailand's sovereign credit profile has remained largely immune to the episodes of political disturbances since the 2006 coup. Nonetheless, improved political stability would likely provide a more favourable environment for foreign and domestic private investment, which in turn is needed to complement public investment.
However, Moody's notes that this will also most likely mean further delays to, or only partial implementation of structural reforms. In addition, if this was to translate into multiple years of below trend growth, this could eventually be negative for Thailand's sovereign credit profile.
As Moody's report points out, Thailand's diversified and competitive economy is a credit strength for the sovereign's Baa1 government bond rating. Moody's assessment of the country's economic strength is supported by the competitiveness of its manufacturing sector.
Moody's noted that the sophisticated manufacturing base has helped Thailand fend off homemade political as well as external and domestic economic shocks. Furthermore, growth has remained resilient during the politically turbulent periods in 2006, 2008, and 2010.
However, Thailand's trend growth has slowed sharply since late 2013. And anti-government protests between November 2013 and May 2014 have negatively affected new investments and the implementation of long-term structural economic policy measures.
Thailand's lead over regional competitors has also been eroding since the 2006 coup d'etat. Moody's states that challenges to the country's competitiveness are seen in rising labor costs, and structural factors, such as demographic changes and a falling public investment ratio.
In addition, Thailand's scores in the Global Competitiveness Index have weakened since 2006, whereas regional competitors, like Indonesia (Baa3 stable) and the Philippines (Baa3 positive) have been catching up.