Thai Unrest Seen Curbing Recovery From Recession

Thailand’s biggest bout of political unrest under the current government has increased economic risks, threatening to crimp a rebound from recession as protests damp local consumption and investment while weakening the currency.

Gross domestic product will rise an average 3.6 percent this year, according to the median estimate in a Bloomberg survey of 26 economists, lower than a forecast of 4 percent in August. GDP probably expanded last quarter from the previous three months after contracting in the first half of the year, a separate survey showed ahead of a report due Nov. 18.

Prime Minister Yingluck Shinawatra has struggled to contain weeks of anti-government protests against a bill that would have provided amnesty for political offenses stretching back to the nation’s 2006 coup, allowing her exiled brother Thaksin’s return. Concern that the lower house will reconsider the bill after a rejection this week by the Senate has hurt investor confidence.

“The current political environment is a headwind to an already weak growth outlook,” said Euben Paracuelles, a Singapore-based economist at Nomura Holdings Inc. “This will not only hurt sentiment but will also have a direct negative impact on real economic activity. The longer this persists, the higher the downside risks to growth.”

The baht is among the worst performers in the last three months of 11 Asian currencies tracked by Bloomberg. The currency will fall to 32 per dollar by Dec. 31, according to Australia & New Zealand Banking Group Ltd., the most accurate forecaster over the last four quarters. The baht was unchanged at 31.585 per dollar as of 1:30 p.m. in Bangkok.

Stocks, Bonds

Anti-government protests in Thailand in 2010 led to clashes that left more than 90 people dead. Prolonged unrest now will harm tourism and private investment and could shave 0.5 percentage points from the nation’s GDP in 2014, according to a BNP Paribas SA research note on Nov. 4.

Southeast Asia’s second-biggest economy grew 2.8 percent in the second quarter from a year earlier after an expansion of 5.4 percent in the preceding period. Third-quarter growth was probably 2.9 percent from a year earlier and 1.5 percent from three months earlier, according to two Bloomberg surveys.

Overseas investors have pulled about $1.6 billion from Thai stocks and bonds since the beginning of the month. Wells Fargo’s Advantage International Bond Fund said Nov. 11 it has sold its holding of Thai government bonds in recent months because of concerns about valuations and political tensions.

“The amnesty bill is certainly something to keep an eye on,” said Lauren van Biljon, a London-based analyst for the fund. “Emerging markets are having to fight harder for investor inflows given the more difficult global environment, so anything that raises internal political risk could create problems.”

Delayed Travel

Demonstrations that have drawn as many as 30,000 people have already hurt tourism and investor confidence, central bank Governor Prasarn Trairatvorakul said Nov. 10. Thai Airways International Pcl, the nation’s largest airliner, has started to see passengers delaying plans to travel to Thailand, President Sorajak Kasemsuvan said Nov. 12.

The number of protesters in Bangkok has fallen after the Senate this week voted to reject the amnesty bill and the International Court of Justice ruled in favor of Cambodia on a territorial dispute, Police Chief Adul Sangsingkeo said Nov. 13.

The Bank of Thailand has held the benchmark interest rate at 2.5 percent in the last three meetings and is due to meet next on Nov. 27, when it will probably leave the rate unchanged, according to a Bloomberg survey. The central bank last month cut its 2013 growth estimate to 3.7 percent from a July projection of 4.2 percent. It said exports may increase 1 percent, down from an earlier forecast of 4 percent.

Minimum Wages

Yingluck’s government raised minimum wages last year and introduced a program in 2011 to buy rice at above-market prices to boost rural incomes. Thailand’s skillful macroeconomic management, strong fundamentals, high international reserves, and moderate public debt levels have blunted the impact of recent shocks and are underpinning a recovery, the Executive Board of the International Monetary Fund said Nov. 12.

Thailand is planning to tap the dollar bond market for the first time since 2006 next year, targeting $1 billion to $1.5 billion of issuance, said Chularat Suteethorn, director-general of the Public Debt Management Office. The money will be used to partly finance the 2 trillion baht ($63 billion) of infrastructure projects that have been delayed.

“The worst is probably over for the Thai economy, and it’s on track for a gradual recovery from the second half,” said Tohru Nishihama, an economist covering emerging markets at Dai-ichi Life Research Institute Inc. in Tokyo. “External demand is recovering, which should contribute to the recovery story. We need to see how the political situation develops.”

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