BANGKOK, April 25 (Reuters) - Thai Prime Minister Abhisit Vejjajiva said on Sunday political unrest will force the government to revise down its projection for growth in the country’s export-oriented economy this year. [ID:nSGE63O00C]
While the economic costs from a long-running crisis have so far been largely confined to the tourism industry, consumer sentiment is declining and businesses are hurting. The central bank last week deferred a rate hike, saying the crisis was hitting confidence, tourism, private consumption and investment. [ID:nBKT003252]
Thailand’s top broker Kim Eng Securities warned on Friday the escalating political violence could lead to civil war and anyone buying Thai shares was taking “a huge risk”. [ID:nSGE63M0B5]
Abhisit rejected talks with “red-shirt” demonstrators who offered to end increasingly violent protests in return for early polls. The red shirts have told their supporters to expect a crackdown on their sprawling encampment in central Bangkok. [ID:nSGE63O007]
This raises questions about risks to the $264 billion economy, Southeast Asia’s second-largest, if the protest movement drags on, the government falls or more violence breaks out.
IS THE POLITICAL CRISIS HURTING PORTFOLIO INVESTMENT?
Portfolio investors had been piling into Thailand, driving the stock market .SETI to a 22-month peak on April 7, three days before a crackdown on red-shirt protesters killed 25 people and injured more than 800. Stocks have lost 7 percent since then on the prospect that Thailand's intractable political divide had entered a new and more dangerous phase.
Fitch Ratings downgraded Thailand’s local currency rating, blaming political uncertainty and a poor policy environment. It said prolonged political uncertainty was likely to undermine sovereign creditworthiness over time.[ID:nTOE63I07R]
Some view Thai stocks as cheap. Listed firms trade at 11.9 times estimated 2010 earnings, making Bangkok the second cheapest market in Asia after Pakistan.
The baht has been strengthening since Feb. 26, despite the troubles, and so the market does not pose a currency risk -- at least not yet. The baht did weaken on Friday after grenade attacks the day before raised the prospect of civil conflict. It is up more than 3 percent this year, broadly in line with regional peers.
HOW ABOUT FOREIGN DIRECT INVESTMENT?
The Board of Investment saw few signs of foreign investors seeking to relocate, but said investment pledges this year could fall 15 percent to 300 billion baht. Japanese firms, the country’s biggest investors, have expressed concern and might look elsewhere if the crisis continues. [ID:nSGE63I07H]
General Motors Thailand said it doesn't have second thoughts over plans to spend $467 million over the next two years on a new diesel-engine plant and retooling existing production lines. Ford Motor F.N, Honda Motor 7267.T, and Chevron CVX.N -- some of the biggest foreign investors -- all had no plans to pull out.
HOW WILL THE UNREST AFFECT GDP ESTIMATES?
Finance Minister Korn Chatikavanij had earlier estimated the crisis could shave 1-2 percentage points from the 4.5 to 5 percent forecast. The central bank had forecast growth of as much as 5.3 percent this year, the highest since 2004, when the economy expanded 6.3 percent. A revised forecast is due April 29.
HOW BADLY IS THE TURMOIL HURTING TOURISM?
Hotel occupancy rates in Bangkok have crumbled to around 20 percent -- zero in luxury hotels around the red-shirt encampment. The United States, Britain, Australia, Japan and other countries have warned citizens to reconsider travel plans to Bangkok. Thailand has seen 24 coups or attempted overthrows since 1932 and scores of other political crises. Foreigners have rarely been affected. But Thursday’s grenade attacks in the business district near Patpong’s go-go bars wounded four foreign men.
The “Land of Smiles” is one of the developing world’s most popular tourist destination, alluring to both jet-setters and backpackers. The number of tourist arrivals is expected to fall significantly short of of this year’s target of 15.5 million.
The Federation of Thai Tourism Associations says the industry lost more than $300 million in the year to March and falls will likely be even greater in April when the protests turned violent.
HOW HAVE BUSINESSES BEEN AFFECTED?
As Thailand’s political unrest enters a seventh week, the economic toll in Bangkok is worsening. Offices in the business district have closed since the grenade attacks. Shops have hung out signs that say: “Sorry, closed due to political unrest”. Bangkok’s Patpong district of go-go bars is deserted most nights.
“Every morning I wake up in fear,” said Inthira Chamnon-arsa, founder of a group of business executives called “Good Friends” that seeks a peaceful resolution of the conflict. “(Thais) have never before expressed this level of hatred,” The Bangkok Post quoted her as saying on Sunday.
Hotels and malls around the red-shirt encampment in central Bangkok have closed at a cost of millions of dollars a day. The Bangkok Post said the unrest has caused 63,000 job losses, mainly due to the impact on the local hotel and tourism industry.
Consumer sentiment has steadily fallen during the crisis, the Federation of Thai Industries said. Concern the protests could turn violent is the biggest factor affecting consumer sentiment, said Santi Vilassakdanont, honorary chairman of the FTI.
COULD THE PROTESTS HAVE A REGIONAL IMPACT?
Indonesian Foreign Minister Marty Natalegawa said on Friday Indonesia was alert to the possibility the Thai troubles could have a contagious impact in the region. “In the past we remember that a situation in one country, if not well managed, could give an impact to the region,” Natalegawa said.
The 1997 Asian financial crisis began in Thailand with a run on the baht and spread to the Philippines, Malaysia, Indonesia and South Korea, as panicky investors pulled their money out.
Singapore on Friday urged all sides to seek a peaceful and lasting resolution for the good of the region.
The Association of Southeast Asian Nations, which includes Thailand as a founding member, is aiming to achieve a single market and manufacturing base by 2015, but domestic problems in member countries could slow down that ambitious goal. ($1=32.34 Baht) (Additional reporting by Orathai Sriring; Editing by Paul Tait)
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