Thai Economic Recovery Shaken as Protests Pose New Risks

(Bloomberg) -- Protests sweeping across Thailand threaten to snuff out chances of a consumption-led recovery from the nation’s worst-ever economic slump.

Nattananporn Hamali, a 29-year-old saleswoman at a car showroom in Bangkok, is already feeling the pinch from consumers’ thrifty behavior. With the bulk of her earnings coming from sales commissions, she’s struggling to pay her mortgage and utility bills.

“I have some customers who pledge to buy and then delay their decision, waiting to see the impact of protests on their jobs and the economy,” said Nattananporn, who’s on her third job since the coronavirus pandemic began.

Bank of Thailand Governor Sethaput Suthiwart-Narueput voiced his concerns last week about the protests hurting confidence, consumption and investment. The central bank says it may take at least two years for the economy to return to pre-pandemic levels.

Prime Minister Prayuth Chan-Ocha’s government has unveiled a raft of measures to drive consumer spending after trade and tourism ground to a halt during the pandemic. The uncertain outlook for the economy, which contracted a record 12.2% in the third quarter, has weighed on the nation’s stocks and currency.

Unlike previous episodes of political turbulence, when the economy escaped major hits thanks to robust external demand, weak global growth now means support is limited to government measures, which the protests threaten to derail, according to Somprawin Manprasert, chief economist at Bank of Ayudhya Pcl.

“Although the bottom might be behind us, it doesn’t mean that we’re on a path to recovery if the economy lacks support measures” from the government, Somprawin said. “The uncertainty and government instability could result in the discontinuity of measures, which will affect growth.”

What Bloomberg’s Economists Say

“The risk premium that investors demand to hold Thai bonds will be influenced by the extent of the unrest’s escalation and any significant deterioration in the outlook for the baht. Should either condition materialize, we expect the BOT to initiate large-scale systematic purchases of government bonds to ensure that market yields remain low enough to support the recovery.”

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--Tamara Mast Henderson, Asean economist

While the political unrest hasn’t derailed any government programs, investors dumped shares of shopping mall operators such as Central Pattana Pcl and Asset World Corp. on concerns of weak sales. Thai equities, already Asia’s worst performers this year, will face a further drag from the political turmoil, Pakorn Peetathawatchai, president of the Stock Exchange of Thailand, said in an interview.

Consumers may prefer to stay home as protesters threaten to continue until their demands are met for Prayuth’s ouster, a new constitution and reform of the monarchy. That risks spoiling Finance Minister Arkhom Termpittayapaisith’s bets that tax breaks and cash handouts to low-income groups can spur the recovery. While Thailand was successful in containing the pandemic with a national lockdown and border closures, the measures rendered millions jobless and left small- and medium-sized businesses struggling.

One key to reviving the economy will be how fast the nation can open up to tourists, who generated about $60 billion in revenue in 2019. Authorities have made a start with limited long-stay visa permits.

“The worsening economic conditions are contributing to public discontent and indeed the protests are likely to persist, making it even harder for the recovery from Covid-19 to take hold,” said Euben Paraceulles, an economist at Nomura Holdings Plc.

More than 62% of participants in a poll by Suan Dusit University published Sunday said discontent with Prayuth was the key reason for the demonstrations. About 44% said the government’s weak performance played a role in escalating the protest movement.

The stand-off may intensify if the government and parliament don’t provide a satisfactory response to protesters’ demands, said Narongdach Juntarapaisarn, investment strategist at Bangkok-based AIRA Securities Co.

“Fresh protests will put more pressure on the Thai economy, which is already very fragile from the impact of the Covid-19 outbreak,” Narongdach said.

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