So far, political stability has not salvaged the Thai economy

Data last week from the National Economic and Social Development Board came as a shock. After shrinking 0.5 per cent in the first quarter, the economy expanded 0.6 per cent in the second – not much but enough to steer us out of technical recession. The shock was delivered by third-quarter growth of only 0.4 per cent, despite a new government being in place with full power to launch whatever policies necessary – a luxury not afforded its predecessor in its last months.

Gundy Cahyadi, a DBS Bank economist, admitted that the third-quarter growth did not meet the bank’s forecast. The figure means the Thai economy grew just 0.15 per cent in the first nine months. Initially projecting 4.1 per cent growth for the fourth quarter, DBS is now convinced the rate will be a mere 3 per cent, putting 2014 GDP growth at a maximum of 1 per cent – well below the World Bank’s 2.5 per cent forecast announced in October. Notably, that figure had already been revised down by the World Bank from the 4 per cent announced in February.

With the NESDB reducing its forecast of annual growth from 1.5-2 per cent to 1 per cent, the Bank of Thailand has dropped hints it will follow suit with its projection, now at 1.5 per cent. Meanwhile, Cahyadi didn’t rule out the possibility the economy could grow at only 0.8 per cent this year. Tisco Securities’ forecast is the lowest, at 0.7 per cent.

What about next year?

For now, DBS foresees growth of 3.8-4 per cent but adds an interesting note: “Given the lower base from this year, this in fact represents a downward revision in the trajectory of growth too.”

In the backdrop to this news, five students in Khon Kaen and a young activist in Bangkok were held for “attitude adjustment”. Forums on national and domestic affairs have also been halted midway, including one at Thammasat University that featured former finance minister Korn Chatikavanij, and a meeting between evicted villagers and their lawyers.

Prime Minister General Prayut Chan-o-cha has said that despite his unhappiness over martial law, it’s still necessary. He also warned that any gestures of public opposition to the coup could place those involved in jeopardy. It all suggests one thing: martial law will be with us for some time, as the junta aims to secure political stability.

But how will this translate to economic stability?

The Fiscal Policy Office is hoping the economy will grow by 4 per cent this quarter on the same period last year. If this is realised, full-year growth will reach 1.4 per cent, in line with the office’s estimate. It said that export figures had improved more than expected while the tourism sector in October showed growth for the first time in 10 months. It also pinned its hopes on the subsidy programme for farmers.

But some economists are sceptical. An article in The Economist last month featured an estimate that the latest coup could cost Thailand US$20 billion to $30 billion over two years. “An empirical analysis of the impact of coups on other national economies shows that growth slows, on average, by 2.1 percentage points in the year of a coup, 1.3 and 0.2 in the first and second year after the coup,” it said.

The World Bank expects Thailand’s neighbours to show improved growth next year: Myanmar at 7.8 per cent, Cambodia at 7 per cent, Laos at 7.9 per cent, and Indonesia, Malaysia, the Philippines and Vietnam all between 5 per cent and 6.9 per cent. The forecast for Thailand is just 4.5 per cent. Needless to say, this would make Thailand the least attractive just as the Asean Economic Community (AEC) is drawing more investment into the region.

In this scenario, it is easy to predict where the new investment will go. In the past months, there has been a notable absence of huge investment projects for Thailand. In recent news, major Japanese trading house the Mitsubishi Corporation plans to invest up to US$1 billion in Indonesia. Meanwhile Samsung Electronics announced earlier this month its plans to spend up to $3 billion building a new smartphone factory in Vietnam.

On tourism, with martial law in place, big-spending visitors are likely to continue avoiding Thailand. What can Tourism and Sports Minister Kobkarn Wattanavrangkul do when insurance firms refuse to cover visitors to a country under martial law? Well, she hopes Thailand can follow up on the Asian Beach Games in Phuket by hosting the World Beach Games. And after damage done to Thailand’s image by the Koh Tao murders, she plans to have tourists on the island wear ID wristbands to boost safety.

On the export front, much depends on the pace of recovery in the US next year, as well as that of Japan, while the situation in Ukraine could further dampen the outlook in Europe. Meanwhile China is bracing for lower economic growth as it negotiates its own rebalancing act. Increased trade with Asean looks certain.

In Thailand, public spending is set to rise. But the long-term benefits will be limited if most of the rise goes to subsidies for farmers. 

Elsewhere, the announcement of a hike in fares has boosted the mood of taxi drivers. It seems that a collective realisation that the May coup might not be good for the economy will only arise only when more university graduates can’t find jobs.