Thailand's once-vibrant economy is buckling under the strain of months of political turmoil that has paralysed government policy, scared off tourists and spooked foreign investors, analysts warn.
Long hailed as “Teflon Thailand” for its enviable record of economic resilience in the face of political upheaval, the fallout from a six-month crisis that has left 28 people dead and hundreds wounded is mounting.
Official statistics due for release on Monday are expected to show that the economy contracted in the first quarter of 2014 from the previous quarter, and experts fear the poor performance will drag on until the deadlock is resolved.
“When there is no government, people lack confidence to spend and invest because they fear constant political chaos,” said Thanavath Phonvichai, director of the Centre for Economic and Business Forecasting at the University of the Thai Chamber of Commerce. “Also, foreigners will not dare to travel to Thailand.”
Thanavath said there was a high risk that the economy would shrink in the second, third and fourth quarters of 2014.
“It is possible that we will have neither a government nor prime minister throughout this year,” he warned.
Southeast Asia’s second-biggest economy has not had a fully functioning Parliament or government since December, bringing major infrastructure projects to a halt and disrupting wider state spending.
Consumer confidence is at the lowest level in 12 years while foreign tourist arrivals have slumped and foreign investors are watching the saga unfold nervously.
Thailand’s economic growth already slowed sharply in the fourth quarter of 2013, to just 0.6 per cent year on year, from 2.7 per cent in the previous quarter, according to official figures.
Fitch Ratings has warned that Thailand's “BBB+” sovereign credit rating could be under threat if the deadlock continues through the second half of this year. “Failure to establish a functioning government by midyear would have a major impact on medium-term capital investment, consumer confidence and fiscal planning,” it warned in a statement.
Eight years of political turmoil, along with the destruction wrought by devastating 2011 floods, have raised fears that long-term investors such as Japanese carmakers could stop new investment, or even move production to other, more stable countries.
Experts say it appears unlikely there will be a functioning government in place in time to pass a 2015 budget within the next few months, delaying all non-essential state spending.
“It will take several months before we have a new government, so by the time we have the new budget it will be next year,” said Somjai Phagaphasvivat, a political-science professor at Thammasat University.
“Political calm will not come easily. The country will be polarised for quite a while.”