Thai economy teeters
January 10, 2014
Thailand's latest political crisis has seen hundreds of thousands of anti-government protesters take to the streets. But business leaders say it has also left the economy teetering on the edge.
Although the country bounced back from the 2006 tsunami, a military coup, the 2010 Red Shirts protests and devastating floods, there are fears the planned "shutdown" of the capital Bangkok on Monday could seriously affect the country's long-term prospects.
So far, despite huge turnouts, the disruption to daily life from the two month-long rallies has been minimal. But tourism, which is normally at peak season, has been severely hit with hotels seeing a dramatic rise in cancellations.
Hotel vacancies plentiful
"Normally hotels can achieve a 90 percent occupancy rate, right now they're at 40 percent," Karl Heinz Heckhausen, President of the German-Thai Chamber of Commerce (GTCC) told DW.
As well as holidays, business meetings and workshops, more than a hundred international flights have been cancelled over the next few weeks. Airlines blame a slump in demand ahead of the shutdown.
Protest leader Suthep Thaugsuban's calls for a blockade of Bangkok's main roads and government ministries could see the impact felt in the wider economy, especially if industry is affected.
"If Bangkok is shut off as of Monday, key manufacturers like parts and components makers could be prevented from getting their materials out," said Heckhausen, who spent 52 years with Mercedes Benz before representing German business interests here.
Some analysts think Suthep could extend the shutdown until election day on February 2. The snap vote was called following a stand off between Prime Minister Yingluck Shinawatra's government and the opposition over a controversial amnesty bill. The proposed legislation would have seen her brother Thaksin, who was ousted in a 2006 military coup, return from exile.
Worries over airport closures
Fears that the shutdown will see protesters lay seige to Bangkok's international airport, as they did in 2008, are being played down by tourism chiefs. The damage to the country's reputation would be enormous.
"That was a disaster. When international businesspeople could not leave Thailand, that had a very, very negative impact. And if you block the roads to the airport, then you could have a similar effect," Heckhausen said.
Suthep has promised that travellers will still be able to access the city's two airports, despite key roads being shut.
Financial analysts say the Thai economy, notably consumer spending, was slowing before the protests began. But some warn that it could fair much worse, if the political stand-off lasts several more months.
Economist Kampon Adireksombat told DW while the rallies have so far not significantly affected domestic consumption, next week's shutdown could see "more warnings or security downgrades by foreign countries, resulting in even fewer tourist arrivals." Tourism revenues account for 10 percent of Thailand's GDP.
Investors wait
"It's clear the economy is slowing down and you cannot rely on fiscal policy any more because we don't really have a government right now," he told Reuters.
This year's GDP is expected to grow 4 percent, down from an earlier forecast of 5.1 percent. But Thailand's Finance Ministry said it could even slip to 3.5 percent if the unrest continued.
In recent weeks, Thai stocks and the baht currency have fallen sharply, as international investors wait on the sidelines for an end to the crisis.
Kampon, who is head of the Economist Strategy Unit at TISCO Securities blamed a delayed payment of a controversial rice subsidy scheme for farmers for the fall in consumption.
Linked to the current political climate, the government is accused of using the $21.4 billion scheme to buy support from its rural base. Many farmers have threatened to join the opposition due to the lack of payment.
Big projects delayed
Thailand's ambitious infrastructure investments worth $62 billion have also been delayed by next month's snap election. The ageing rail network was set to be upgraded with several new high speed routes. Ports and major roads were also due to be modernised. The delay could see this year's growth cut by an additional 0.5 percent.
Kampon sees "both public and private investment likely to be adversely affected by any prolonged political uncertainty."
Other analysts point to the lost opportunities from around eight years of political strife, while other Southeast Asian economies have soared.
"All this time private investment is much lower as a share of GDP compared to our neighbouring countries," Sutapa Amornivat from Siam Commercial Bank told Reuters. "If you look at that, you can definitely see that without political unrest, possibly our economy would be growing much faster."
Damaged reputation?
If Bangkok is paralysed by the strategy, foreign businesses could look to neighbouring countries to base their manufacturing plants in future
"At the moment the interest (in Thailand) is still high, but this might change next week," said GTCC's Heckhausen.
Ahead of Monday's shutdown, Thai authorities have gone out of their way to assure tourists and business executives that Bangkok will still be safe. However, Thai officials confirmed on Friday that the number of foreign tourists had dropped by about 300,000, costing the country about 0.6 billion US dollars in lost
Officials are setting up "Tourist Friends Centers" all over the city to give advice on areas to avoid, while hotels have beefed up security.
But both Kuwait and the United Arab Emirates have warned their nationals not to travel to Thailand over the next few days and the American embassy has warned its citizens to stock up on food, water and medicine. Perhaps those in the know believe that the shutdown will be prolonged.