Scenarios: How could Thai political crisis affect the economy?

BANGKOK (Reuters) - Thailand’s economy was recovering well this year until anti-government protesters started a mass rally in Bangkok in the middle of March, which has sparked the country’s deadliest political violence in 18 years.

The protesters agreed on Tuesday to enter talks brokered by lawmakers to end a crisis threatening to tear the country apart, but the government has not reacted positively and analysts doubt negotiations would stop the violence.

The following scenarios look at what could happen now to the $264 billion economy, Southeast Asia’s second largest.


The military has battled the protesters for five days but has managed to secure only some parts of central Bangkok.

Hundreds of protesters are now outside the main camp and can challenge the army from behind. Pitched street battles look set to continue for days at different locations. Further loss of life looks inevitable, with the army probably prevailing in the end.

ECONOMIC IMPACT: More bloodshed would cause bigger damage to the economy, further sinking consumer confidence, which already suffered a record drop in April. Private consumption accounts for about half of the economy.

The occupation of Bangkok’s ritziest shopping district by protesters has forced hotels, malls and offices to close doors and cut jobs since April 3.

The government said in April that about 25,000 employees in Bangkok, mostly retail and hotel employees, had not been able to work or had been put on unpaid leave. Media reported the unrest had cost 63,000 jobs, mainly in the hotel and tourist industries.

The tourism sector makes up about 6 percent of the economy but it employs 15 percent of the country. So loss of tourism has a knock-on effect on economic activity.

The government said arrivals at Bangkok’s main Suvarnabhumi Airport fell by a third last month and arrivals this year could be sharply lower than the official target of 15.5 million.

Exports have been little affected so far, although transport disruption has held up some deliveries of sugar to Bangkok’s port, traders said on Tuesday.

Shipping firms in the business district have had their operations disrupted, according to the Federation of Thai Industries. “Customers are now diversifying their risk by placing orders elsewhere rather than placing 100 percent of an order with Thailand,” Vice-Chairman Thanit Sorot told Matichon daily.

In late 2008 a different group of political protesters blockaded Bangkok’s airports for a week and exports suffered, although the “red shirts” have not threatened similar action.

The Bank of Thailand’s forecast of 4.3-5.8 percent growth this year could be hit, although the central bank said the projection in late April would have been 0.9 point higher but for the unrest and it was based on a worst-case scenario. The unrest may well persuade it to leave interest rates at the current record low of 1.25 percent for some months.

Finance Minister Korn Chatikavanij said on May 12 the protest could cut 0.3 point off his 4.5-5.0 percent growth forecast.

Economists say growth could be cut by 2 percentage points this year, with the economy possibly shrinking sharply in the second quarter from the first if the crisis continues.

The country’s credit ratings could be downgraded.

Foreign selling of stocks will continue if the political situation spirals out of control. The baht could come under selling pressure, although external factors have provided support until now.


This does not look too likely at this point. But it is feasible that talks could result in a compromise that would allow both sides to claim some sort of victory.

ECONOMIC IMPACT: A compromise would boost confidence and push economic growth back on track.

Pent-up demand would be released as tension fell. Economic growth could even approach the official forecasts if exports remained good, although it would take months for tourism and certain businesses to recover, economists say.

The stock market would rise and foreigners start buying again. However, this may be limited by a perception of more, perhaps deadlier, unrest if the deal fell through.

The baht could rise, depending on the trend in other Asian currencies.


The military may make it clear it will enter the Rachaprasong camp and many protesters, faced with death, agree to leave. Hard-core demonstrators could fight on and a full-scale urban gunbattle would leave many dead and injured on both sides.

ECONOMIC IMPACT: As in the first scenario. More violence would hit confidence, the country’s image abroad and its lucrative tourism. Growth would fall well below the official target.

The baht would probably fall and the stock market slump.


Fierce clashes could escalate to battles with armed militias at several locations around Bangkok and beyond. The government and the army would be humiliated if troops retreated and the coalition government could fall apart.

ECONOMIC IMPACT: An early dissolution of parliament would do little to benefit the economy. 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 -- 1.43 trillion baht ($44.2 billion) over three years -- and disrupt normal fiscal spending.

Economic growth would be disrupted and the medium-term impact might be even more severe. Foreign investors who have stuck it out until now might start to rethink their plans. Japanese firms, the country’s biggest investors, have expressed concern and might look elsewhere if the crisis continued.

Even before the latest violence, the Board of Investment forecast foreign investment pledges this year could fall 15 percent to 300 billion baht. That could have an impact, eventually, on vehicle and electronics exports, hitting the trade and current account surpluses and pulling the baht lower.

Stocks might climb on the perception that this episode of the crisis was over. However, the potential for violence to resurface before or after a new election would keep many investors sidelined.

($1=32.30 Baht)

Additional reporting by Satawasin Satapornchranchai; Editing by Alan Raybould