Political violence could sap foreign direct investment (FDI) and the bustling tourism sector.
Anti-government groups are reportedly behind mass bombings in popular tourist areas. This comes days after amendments to Thailand’s constitution, which will see the military government’s authoritarian rule increase. The new amendments enable the military to appoint the senate and reserve six seats for military commanders to check the power of elected MPs. There is also a section which allows for an unelected Prime Minister to take power in the event of a political upheaval.
Elevated political uncertainty and the coup in 2014 retarded growth—from 2.7% p.a. in 2013 to 0.8% in 2014. Growth has since recovered to average 2.8% over the last 18 months. But the fresh round of political violence could weigh heavily on business confidence and tourist arrivals. The tourism sector accounts for 20% of GDP.
FDI is also vulnerable to political wrangling and has fallen significantly in the last 18 months (Chart 1). Inflows remain prone to political risk, particularly with the emergence of other lower cost and more politically stable investment destinations such as Vietnam.