The National Economic and Social Development Board (NESDB) has maintained the 2010 economic growth forecast at 3.5 per cent to 4.5 per cent, according to secretary-general Ampon Kittiampon.
He added that if without the riot, the gross domestic product (GDP) could expand 6 per cent to 7 per cent this year.
In the first quarter, the GDP expanded 12 per cent on the same period last year, the highest quarterly growth rate in 15 years since the second quarter of 1995 when the growth rate was 12.3 per cent.
In Asia, the 12 per cent growth rate followed Singapore's 15.5 per cent and Taiwan's 13.3 per cent.
"Thailand's economy staged a full recovery, thanks to the robust 16.2 per cent export growth, with the export value of US$44.38 billion - the highest since 2006," Ampon said.
Buoyed by the first quarter figures, Barclays Capital for now maintains its 2010 GDP forecast at 5 per cent. "However, if the country's political protests continue, we believe the loss in tourism-related revenue could shave 1 percentage point off GDP growth in 2010."
Barclays also believed that political instability will affect the Bank of Thailand's interest rate decision on June 2. It expected a rate hike by 25 basis points at the meeting, but the recent violence has reduced the chances of a hike, it said.
DBS Vickers Securities (Thailand) now expects the second quarter GDP to show zero growth in the second quarter due to the violence in Bangkok. The worst affected sectors would be tourism and domestic demand and merchandise exports would likely be the only bright spot.
HSBC Research also expected a heavy political impact on the second quarter GDP. The consumer confidence index declined sharply for the month of April, for instance. Despite crowds at unaffected malls, the economy can't totally brush off the impacts. While the crowds show pockets of resilience within the domestic sector that could yet contain the impact and limit the overall damage. Moreover, the strength in the manufacturing sector - which has been relatively unaffected by the development - can still serve as an important bulwark while the rest of the economy tries to pull itself up from the recent shock.
"The chief risk to our relatively sanguine outlook remains the fact that the current relative political calm may again prove to be temporary, given that the underlying rift between the various sides is yet to be bridged fundamentally. With the lingering uncertainties in mind, the Bank of Thailand looks likely to keep its policy rate unchanged on June 2, even with the exceptionally strong first-quarter GDP performance."
In its research, Barclays noted that with the recovery in the economy more entrenched, inventory rebuilding is well underway, with restocking adding 8.7 percentage point to growth in the first quarter. This should help prolong the production cycle in terms of both quantity and quality. The other main driver was investment, which grew 12.6 per cent year on year, supported by the recovery in business sentiment and rising capacity utilisation.
"This is the fastest pace of investment growth since 2005 and represents the first positive contribution to growth in six quarters."
Private consumption grew by 4 per cent year on year - fastest pace in four years - compared with 1.4 per cent in the fourth quarter 2009. Consumption was likely supported by the turnaround in consumer confidence and rising rural incomes. Government consumption remains high, expanding 6.9 per cent year on year, given continued disbursal of fiscal stimuli.
Although domestic demand indicators remain strong, with the Bank of Thailand's indices of private consumption and private investment having risen above pre-crisis levels, the political developments are beginning to weigh on sentiment. Consumer confidence has now eased for three consecutive months and is likely to be reflected in dampened private consumption in the coming months. Business sentiment may feel some pressure, but it is worth emphasising that Thailand's manufacturing sector continues to benefit from strong regional demand for electronics and autos. At the same time, businesses' total order books remain high, indicating that production is likely to remain on a strong footing in the coming months.
In the first quarter, exports grew by a robust 16.2 per cent year on year and imports expanded by 31.4 per cent year on year. Overall net exports detracted 2.4 percentage points from growth following a 7 per cent contribution in the fourth quarter of 2009.
"Looking ahead, we expect exports to remain elevated in the second half, consistent with solid prints from the US ISM, regional PMIs and the strong turnaround in the global electronics cycle. However imports could take a breather due to falling consumer sentiment and restricted mobility within Bangkok."
Tourist arrivals contracted 3 per cent month on month on a seasonally adjusted basis in March and are expected to remain weak. Tourism accounted for 6.5 per cent of GDP last year, but the sector accounts for 15 per cent of total employment in the kingdom. Thailand's tourism association also estimated that hotel occupancy in Bangkok is hovering at around 30 per cent, compared with as high as 70 per cent before the protests began. If the protests continue, we believe the loss in tourism-related revenue could shave 1 percentage point off GDP growth in 2010.