Thailand: Political crisis

Protests risk derailing consumption-led economic recovery

Pro-democracy protesters during a rally at the German embassy in Bangkok on Oct 26, 2020.
Pro-democracy protesters during a rally at the German embassy in Bangkok on Oct 26, 2020.PHOTO: EPA-EFE

BANGKOK • Protests sweeping across Thailand threaten to snuff out chances of a consumption-led recovery from the nation's worst economic slump.

Ms Nattananporn Hamali, a 29-year-old saleswoman at a car showroom in Bangkok, is already feeling the pinch from consumers' thrifty behaviour.

With the bulk of her earnings coming from sales commission, she is struggling to pay her mortgage and utility bills.

"I have some customers who pledge to buy and then delay their decision, waiting to see the impact of protests on their jobs and the economy," said Ms Nattananporn, who is on her third job since the start of the coronavirus pandemic.

Bank of Thailand governor Sethaput Suthiwart-Narueput voiced his concerns last week about the protests hurting confidence, consumption and investment.

The central bank has already flagged that it may take at least two years for the economy to return to pre-pandemic levels.

Thai Prime Minister Prayut Chan-o-cha's government has unveiled a raft of measures to drive consumer spending after trade and tourism ground to a halt during the pandemic.

The uncertain outlook for the economy, which contracted a record 12.2 per cent in the third quarter, has weighed on the nation's stocks and currency.

Unlike during previous episodes of political turbulence, when the economy escaped major hits thanks to robust external demand, weak global growth now means support is limited to government measures, which protests threaten to derail, according to Dr Somprawin Manprasert, chief economist at Bank of Ayudhya.

"Although the bottom might be behind us, it doesn't mean that we're on a path to recovery if the economy lacks support measures (from the government)", said Dr Somprawin.

"The uncertainty and government instability could result in the discontinuity of measures, which will affect growth."

While the political unrest has not derailed any government programmes, investors have dumped shares of shopping mall operators such as Central Pattana and Asset World Corporation on concerns of weak sales.

Consumers may also prefer to stay home as protesters threaten to continue rallying until their demands for Mr Prayut's ouster, a new Constitution and reform of the monarchy are met.

That risks spoiling Finance Minister Arkhom Termpittayapaisith's bets of tax breaks and cash handouts for low-income groups to spur recovery.

While Thailand was successful in containing the pandemic with a national lockdown and border closures, the measures rendered millions jobless and left small and medium-sized businesses struggling.

One key to reviving the economy will be how fast the nation can open up to tourists, who generated about US$60 billion (S$81.6 billion) in revenue last year.

The authorities have made a start with limited long-stay visa permits.

"The worsening economic conditions are contributing to public discontent and indeed the protests are likely to persist, making it even harder for the recovery from Covid-19 to take hold," said Mr Euben Paraceulles, an economist at Nomura Holdings.

More than 62 per cent of participants in a poll by Suan Dusit University published on Sunday said discontent with Mr Prayut was the key reason for the recent demonstrations, with about 44 per cent saying they think the government's weak performance played a role in escalating the protest movement.

The stand-off may intensify if the government and Parliament fail to come up with a satisfactory response to the movement's demands, said Mr Narongdach Juntarapaisarn, investment strategist at Bangkok-based AIRA Securities.

"Fresh protests will put more pressure on the Thai economy, which is already very fragile from the impact of the Covid-19 outbreak," he said.

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A version of this article appeared in the print edition of The Straits Times on October 28, 2020, with the headline 'Protests risk derailing consumption-led economic recovery'. Print Edition | Subscribe