Thailand — Rising protests and ebbing economy sour business climate

The Thai economy was losing momentum even before the COVID-19 pandemic—GDP growth dipped to a five-year low of just 2.4% in 2019. An ageing manufacturing sector and global trade tensions weighed on exports while high household debt dented consumption. Although Thailand has been relatively successful in stemming COVID-19 infections, the economy is expected to contract a record 8.5% this year. Indeed, real GDP fell 12.2% in the second quarter; the worst outcome since the 1997-98 Asian financial crisis. Recovery is likely to be slow. Tourism accounts for roughly a fifth of the Thai economy; but authorities estimate international arrivals could be as low as 15% of 2019 levels under a worst-case scenario. Efforts to stimulate domestic tourism will be frustrated by weak confidence and rising unemployment.

Political turbulence may also hinder the economic recovery. Thailand is upheaval prone; most recently violent street protests resulted in an army-led coup d’état in 2014. Student protests since July are demanding a new constitution, the dissolution of parliament, a halt to perceived intimidation of political dissidents, and reform of the monarchy. The stakes are high; Thailand’s lese-majeste laws strictly forbid criticising the monarchy. Growing political risk and dire economic conditions are weighing on investor sentiment; foreign investors have been net sellers of Thai equities every month this year. Already, foreign direct investment—a critical component of Thailand’s economic development—fell to US$4 billion in 2019 (from US$10 billion in 2018). To the extent that rising economic hardship exacerbates anti-government protests and delays a tourism and investment led economic recovery, this cycle may continue. Australian exports to Thailand fell 27% in 2019 to $5.7 billion (Chart). The outlook does not bode well for a quick turnaround.