A pedestrian walks past campaign posters for various political parties in Bangkok, Thailand. (Photographer: Brent Lewin/Bloomberg)

Politics Looms Over Thai Economy as Election Stirs Tension

(Bloomberg) -- Political tension has emerged as a threat to the domestic economic drivers Thailand is relying on amid a global slowdown.

A push to disband a political party over a failed bid to make a princess its prime ministerial candidate lays bare deep splits ahead of a March general election, the first since a coup in 2014. The unfolding drama is a reminder of Thailand’s cycle of polls, unrest and military intervention since 2006.

"We don’t expect election-related chaos as we approach the election date," said Eugenia Victorino, head of Asia strategy at Skandinaviska Enskilda Banken AB in Singapore. "However, the ability to form a stable government is vital in the continuity of the recovery in private investments."

Forecasters such as the World Bank expect rising private consumption and investment in Southeast Asia’s second-largest economy to fill much of the gap from easing exports this year. The risk is that domestic instability could lead companies and consumers to delay spending.

Gross domestic product expanded 3.7 percent in October to December from a year earlier, picking up from a 3.2 percent pace in the prior quarter, according to data released Monday by the National Economic & Social Development Council. Full-year 2018 growth was 4.1 percent and the 2019 forecast is 3.5 percent to 4.5 percent.

Faster Neighbors

Politics Looms Over Thai Economy as Election Stirs Tension

While Thai growth has recovered since 2014 -- when unrest brought the economy to a near standstill and sparked the coup -- the pace still lags neighbors in Southeast Asia.

Domestic Drivers

Politics Looms Over Thai Economy as Election Stirs Tension

As exports wane, consumer spending and private investment are relative bright spots. Investor confidence and the wider Thai economic environment could be sensitive to the elections and policy steps after the poll, the NESDC’s Secretary General Thosaporn Sirisumphand said Monday.

FDI Falling

Politics Looms Over Thai Economy as Election Stirs Tension

Foreign direct investment as a share of the economy has declined during a more than decade-long power struggle between exiled former leader Thaksin Shinawatra and the military and royalist elite. Thaksin or his allies have won every election since 2001, only to be unseated by the courts or the military.

Waning Price Pressures

Politics Looms Over Thai Economy as Election Stirs Tension

Price pressures have waned in Thailand, partly because of a surge in the baht. Together with an uneven economic outlook, that’s adding to the case for leaving interest rates unchanged after December’s quarter-point increase.

"Baht outperformance and a pullback in global oil prices reinforce our expectations of a pause in policy rates this year," said Radhika Rao, an economist at DBS Bank Ltd. in Singapore.

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