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Double-whammy hits troubled Thailand's economy: analysts
Agence France Presse - December 7, 2008
Claire Truscott, Bangkok – Thailand's political crisis is battering the kingdom's economy just as the global financial crisis begins to bite, analysts say, but a power vacuum at the top means nothing is being done to help.
Thailand is without a government after a court last week dissolved the ruling party, following a devastating eight-day blockade of Bangkok's airports by demonstrators trying to topple the administration.
The lack of leadership comes as the economy faces not only lagging demand for the tourism, commodities and manufactured exports which propel the Thai economy, but also reduced spending at home amid the political uncertainty.
"They really need to get an end to this political crisis and get a working government back in," said Claire Innes, Asia-Pacific manager for global risk firm IHS Global Insight based in London.
"You need quite proactive policy-making – fiscal stimulus needs a legislative process, and with a government in disarray, strong decisive action is not going to happen."
Thailand's economy is already slowing. Thailand's central bank has forecast growth for this year to be between 4.3 and five percent, having already cut its estimate from an earlier figure of 4.8-5.8 percent.
Innes said that it could slow further to 2.1 percent in 2009, starting in the fourth quarter of this year. "We are expecting it to be weaker than even 2001 when the technology bubble burst and hit Asian economies quite hard," she said, adding that poor growth was likely to continue through 2010.
The stock market has plunged 50 percent since protesters first took to the streets in May aiming to topple the government they accuse of acting as a proxy for former premier Thaksin Shinawatra, who was ousted in a coup in 2006.
After the the global media attention on the airport blockade by the protesters, the most immediate sector to suffer has been tourism, which accounts for six percent of Thailand's Gross Domestic Product.
The Tourism Authority of Thailand warned after the eight-day airport blockade, which stranded 350,000 travellers, that it is expecting only half as many tourists next year as the 14.5 million visitors who came in 2007.
"We may see something comparable to four years ago after the Asian Tsunami," said David Cohen of Singapore-based Action Economics.
"Tourists were afraid to go to Thailand for about six months then and people will be avoiding it for the next quarter at least now because they don't want to get stranded," he said.
But it is exports where Thailand is really starting to feel the pinch, with weakening economies in the United States, Europe and Japan affecting Thailand's largest export markets for manufactured goods.
General Motors in Thailand said last month it would will halt assembly for two months and shed 250 staff due to slow demand, as its struggling parent company sought a bailout in the US.
"Net exports are falling and local political turmoil is seriously deterring investment and tourism," said Ampon Kittiampol, secretary general of the state-run National Economic and Social Development Board.
The growing troubles in Thailand are a cause of regional concern, since the 1997 Asian financial crisis started in the kingdom when its currency collapsed and took the economy with it.
Analysts said conservative economic policies since then had safeguarded Thailand from further troubles, until now.
The Bank of Thailand cut interest rates by 100 basis points to 2.75 percent in a bid to boost the economy on December 3 – the biggest cut since 2000 when Thailand adopted its current inflation targeting policy.
Thitinan Pongsudhirak, a political analyst at Bangkok's Chulalongkorn University, said that Thailand's fundamentals were now solid, with large foreign exchange reserves.
The baht closed last week at a 22-month low of 35.74-76 baht to one dollar but has appreciated against some currencies in recent months.
"We now need a lot of investment and Thailand should boost its internal economy consumption, but that's not happening because the government's under attack," Thitinan said.
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