March 6 (Bloomberg) -- Thailand's economic growth may stall as a snap election held amid calls for Prime Minister Thaksin Shinawatra's resignation hurts corporate and consumer confidence. The benchmark stock index fell because of the lingering crisis.

Thaksin is campaigning to win an April 2 poll announced 10 days ago when he dissolved parliament following weekly mass protests in the capital Bangkok. Opposition parties are boycotting the election.

Since the dissolution of parliament Thailand has postponed signing a free trade accord with Japan and put negotiations on a similar agreement with the U.S. on hold. The government will probably delay a deadline for foreign companies bidding for a slice of 1.7 trillion baht ($43.8 billion) earmarked for public works, which Thaksin has proposed as an economic driver for the next five years.

``A lot of investors are not going to look at anything else apart from politics at the moment for as long as there is nobody who has any credibility running the country,'' said Sanyalaksna Manibhandu, a vice president for institutional research at Kim Eng Securities (Thailand) Pcl, the country's biggest stockbroker. ``If we don't have the leadership in place, things like government spending cannot help the economy.''

Thaksin himself acknowledged the potential economic impact of lingering political uncertainty and demonstrations, just an hour before the country's National Economic & Social Development Board cut its 2006 GDP growth forecast.

`Uncertainty'

``We can't let the country face that uncertainty,'' Thaksin told reporters today in Khon Kaen, about 450 kilometers (280 miles) northeast of Bangkok. ``All this may affect the economy in some way. There is no impact yet, but there will for sure if this situation lasts.''

Thailand's economy expanded at the slowest pace in three quarters in the final three months of 2005 as farm output fell and lower exports hurt manufacturing, prompting the government to cut this year's growth forecast to between 4.5 percent and 5.5 percent, from a range of 4.7 percent to 5.7 percent.

``Concerns about politics will also affect business and consumer confidence in the first half of this year,'' Ampon Kittiampon, general secretary of the NESDB told reporters in Bangkok today. ``If the political crisis turns into widespread violence, it will also affect tourism and the stock market. This would prompt us to review'' our economic growth forecasts for 2006, he said.

The SET Index fell 2.58, or 0.3 percent, to 750.81 at the 4:30 p.m. close in Bangkok, halting a three-day 1.3 percent gain. Eight stocks dropped for every five that rose. About 9.5 billion baht of shares changed hands, the smallest amount since Dec. 26, when 7.4 billion baht traded.

`Political Problems'

Thaksin was betting on a five-year infrastructure spending plan and free trade agreements with Japan, the U.S., and other countries to boost the country's exports and economic growth. Southeast Asia's second-biggest economy wants to eliminate most tariffs with its biggest trading partners to boost exports, and had forecast the capital works program to boost economic growth to an average 5.48 percent a year from 2005 to 2009.

``As far as foreign investors are concerned, these political problems are beginning to affect business,'' said Bruce Gale, an independent political risk analyst based in Singapore. ``Now it seems that trade negotiations with the U.S., Japan, Europe, probably India as well, all these things are going to be put in the freezer until Thailand's political troubles are solved one way or another.''

Thailand had planned to sign the agreement with Japan, the nation's second biggest trade partner, on April 3 -- now postponed because of the elections -- and had aimed to complete its trade deal with the U.S., its biggest trading partner, before mid-year.

Election

Thaksin will now have to focus on the election instead, Karun Kittisathaporn, the commerce ministry's permanent secretary, told reporters in Bangkok March 3.

Finance Minister Thanong Bidaya said Feb. 24 -- just hours before Thaksin dissolved parliament -- that Thailand may postpone by a month an April 28 deadline for technical proposals from foreign companies on the so-called mega projects because the time was too short. The government has not officially revised the deadline or indicated further delays since the political crisis deepened last week.

``Given what's going on in politics, economic activity is at a stall,'' said Kitti Nathisuwan, head of equity research at TMB Macquarie Securities (Thailand) Ltd. ``The potential slowdown in growth is quite legitimate. Consumers are just in a wait-and-see mood with what's going on. On the investment side it may take time to push the button.''

Confidence Falls

Thailand's consumer confidence in January fell for the first month in five amid concerns that political attacks may weaken the government and hurt economic growth, a University of the Thai Chamber of Commerce poll showed Feb. 9. The confidence index fell to 82 from 83.6 in December, according to the poll of 2,249 respondents.

``Consumer confidence has been significantly hurt in the past few months with protests and the political crisis,'' Naporn Sunthornchitcharoen, senior executive vice president at Land & Houses Pcl, Thailand's biggest homebuilder, told reporters on March 1. ``It has affected the property industry because people buy new homes mainly based on their confidence of economic growth, not savings. The political uncertainty and crisis will delay the mega-projects which are needed to boost economic growth and employment this year.''

Tens of thousands of Thais attended an anti-Thaksin protest late yesterday, and thousands marched on the premier's Bangkok office to demand his resignation.

Boycott

Thaksin, 56, a former policeman and billionaire businessman turned politician, on Feb. 24 dissolved parliament and called an election for April 2, which is being boycotted by the three main opposition parties over disagreements on constitutional change.

Thailand's leader has faced escalating calls to quit since his family's sale in January of its stake in the communications company Shin Corp. netted a tax-free $1.9 billion. Since winning a record majority in Feb. 2005, Thaksin has been attacked over issues including conflicts of interest, media freedom, ministerial ethics, education reforms, free trade pacts, planned sales of shares in public utilities, and Muslim unrest.

Thaksin in a speech to supporters on Friday night said he would call a second parliamentary election no sooner than next year, in an attempt to gain a legitimate mandate as opponents boycott next month's poll.

To contact the reporters on this story: Beth Jinks in Bangkok at bjinks1@bloomberg.net; Laurent Malespine in Bangkok at lmalespine1@bloomberg.net

Last Updated: March 6, 2006 05:12 EST