BANGKOK When protesters in Bangkok started a rally in the middle of March to force early elections, the economy was recovering well from a brief recession and the government confidently expected GDP to rise 4.5 percent in 2010.
Seven weeks on -- after 26 people have died and hundreds have been wounded in clashes between security forces and protesters -- tourist arrivals have slumped and the government says it will have to cut its economic growth forecast.
The following scenarios look at what could happen to the $264 billion economy -- Southeast Asia's second largest -- depending on how the protest develops.
VIOLENCE GETS WORSE, CONFIDENCE SLUMPS
Clashes are reported around the country, rival political groups enter the fray and the army launches a crackdown on the Bangkok protesters. The protesters may be armed with assault rifles and M-79 grenades, so heavy loss of life could result.
ECONOMIC IMPACT: Further bloodshed would sink consumer confidence, already down in February and March from a 21-month high in January. Some retailers, suffering because the protests have effectively closed Bangkok's ritziest shopping area, could be forced to shut their doors or cut jobs.
The government said this week in Bangkok about 25,000 employees, mostly retail and hotel employees, had not been able to work or go on unpaid leave. Media reported that the unrest had cost 63,000 jobs, mainly in the hotel and tourist industries.
The tourism sector only makes up 6 percent of the economy, but more importantly it employs 15 percent of the country. So loss of tourism has a knock-on effect on economic activity.
The government says arrivals at the main Suvarnabhumi Airport have fallen by a third this month. Arrivals this year could total 14.5 million rather than the official target of 15.5 million, the Association of Thai Travel Agents says.
Exports, on the other hand, have been little affected so far, the Commerce Ministry says. That should remain the case unless airports are targeted by the protesters -- as in late 2008 -- or transport around the country is disrupted.
The government has said it may cut its 4.5 percent economic growth forecast by 0.64 percentage point if the trouble drags on for three months, while the University of the Thai Chamber of Commerce predicts GDP growth could be cut by 0.5 point.
The central bank could also trim its 3.3-5.3 percent growth projection on Thursday when it releases new forecasts. Last week, it left interest rates at a record low and said it was monitoring the impact of the unrest. Worsening violence would likely keep the Bank of Thailand on hold.
The country's credit ratings could be downgraded.
MARKET REACTION: Thai assets already price in a relatively high degree of political risk and are seen as undervalued. Thai stocks are likely to remain volatile, with serious unrest triggering price falls followed by tentative buying by bargain-hunters looking to tap one of Asia's cheapest markets.
The baht has tended to move in line with other Asian currencies, but could weaken if the government lost control in the wake of a crackdown and resigned, dealers say.
Benchmark five-year bond yields would probably test the seven-month lows reached last week as investors seek the relative safe-haven of government debt.
COALITION FALLS APART, ELECTIONS FOLLOW
The ruling coalition falls apart and an election is called. The Puea Thai Party, close to anti-government protesters known as the "red shirts" and ex-premier Thaksin Shinawatra, who was ousted in a 2006 military coup, is almost certain to emerge as the biggest party and so forms the next government.
ECONOMIC IMPACT: An early dissolution of parliament would in fact do little to benefit the economy. Instead, it would probably lead to further turmoil, with Bangkok's middle classes and the royalist elite unlikely to accept a pro-Thaksin government.
It would also take time to form a new government, which would delay the current government's stimulus spending of 1.43 trillion baht over three years and disrupt normal fiscal spending.
The finance ministry has said growth could be slashed by 1.8 percentage points if the unrest continued until the fourth quarter and led to a dissolution of parliament.
The medium-term impact might be more severe. Foreign investors who have stuck it out until now might start to rethink their plans. Japanese firms, the country's biggest investors and including Toyota Motor Corp, have expressed concern and might look elsewhere if the crisis continues.
That could have an impact, eventually, on vehicle and electronics exports, hitting the trade and current account surpluses and pulling the baht lower.
MARKET REACTION: The prospect of a fresh start under a new government might push stocks up at first, with the market's low valuations tempting investors with an appetite for risk.
It may not improve Thailand's credit ratings, though, thus keeping the debt market under pressure. Any political deal would not really solve the problem in such a polarized country, so a new cycle of protests could start.
Thailand has seen 24 coups or attempted coups since 1932, the most recent in 2006 that removed Thaksin. Another cannot be ruled out; if either Abhisit is deemed to have failed, or if there is an election and a government sympathetic to Thaksin is returned.
ECONOMIC IMPACT: A coup would not solve the problem. If it is bloody, it would sharply hurt business and consumer confidence.
Economic growth could be cut 0.5 point in that quarter, with consumption and business activity depressed, economists say. Government activity, including disbursement of stimulus spending, would be disrupted.
The central bank would probably hold rates for a considerable time to try to bolster confidence and provide economic stability.
Thai credit ratings would be downgraded. A contagion effect in Southeast Asian emerging markets cannot be ruled out, even if analysts reason that the situation is peculiar to Thailand.
MARKET REACTION: The 2006 military government brought in capital controls that caused the biggest one-day drop in the stock market in 31 years. Worries about similar heavy-handed moves and fiscal mismanagement could push down share prices and bonds, despite the prospect of indefinitely low interest rates.
The baht might be depressed, although it continued to firm in 2007 despite the controls and in recent months it has been influenced as much by external factors as the political crisis.
Five-year credit default swaps, an insurance-like instrument, could jump beyond levels struck this week, which were the highest in nearly a year.
TALKS BETWEEN GOVERNMENT AND PROTESTERS, COMPROMISE REACHED
This may be the best solution -- but unlikely as Abhisit maintains a tough line, resisting calls for an immediate election and allowing tension to build on the streets in the hope of wearing down the protesters.\
ECONOMIC IMPACT: A compromise would lift confidence and push the baht and stocks higher. Pent-up demand would be released as tension fell. Full-year economic growth could shift toward the high end of the wide 2.8-6.0 percent range forecast by economists..
With the economy back on track and business returning to normal, the central bank might be more comfortable about starting to "normalize" rates at its next meeting in June, to curb an expected rise in inflation as demand increases.
MARKET IMPACT: The baht and stocks would rise with investors returning to the markets. But bond prices could fall, pushing up yields, as money switches back into stocks and a rate rise looks imminent. ($1=32.20 Baht)
(Additional reporting by Satawasin Sataporncharnchai; Editing by Alan Raybould)
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