A year after the coup, few growth prospects in Thailand

A year after the coup, few growth prospects in Thailand

This month, Thailand marks the one-year anniversary of a coup that ousted democratically elected Prime Minister Yingluck Shinawatra. With few signs of returning to democracy, the Thai economy continues to be undermined by political turbulence. 

Thailand has again postponed elections for a referendum on a draft constitution, posing a serious risk to public confidence. Details about the referendum are unavailable, and the question of how the public vote will be carried out is being debated.

Perhaps the most urgent consideration is what will happen if the draft constitution is rejected. It is most likely that a new drafting process will have to start which could postpone the election for another year. Thus, the election is likely to be delayed until the end of 2016 if the referendum is accepted, and 2017 if it is rejected.

In short, it remains unclear how long the promised general election will be postponed. The lack of an election will undermine the public’s confidence and certainty about the country’s direction, and the public will be cautious when it comes to spending money.

The draft constitution was designed to make sure no party wins an outright majority, in order to prevent legislative paralysis linked to coalition building and non-directly elected prime ministers. This is widely seen as an attempt to keep Prime Minister Prayuth Chan-Ocha in office and prevent the return of Thaksin and his Pheu Thai party, which would likely win a majority in an election.

The constitutional attempt to weaken political parties will not resolve the deep political divisions between supporters of the Shinawatra family and the royalist-military establishment in Bangkok. The possibility of another round of deadly conflict in Thailand will therefore remain for at least another two years.

An ongoing trial for negligence faced by Yingluck, who, if found guilty, would add fuel to this fire, and very likely stir up a mass protest from the ‘red shirts’, who have remained largely inactive since the military took control.

Immediate economic consequences from renewed mass demonstrations would be felt by the tourism industry. The number of foreign tourists is estimated to have dropped between 6.6% and 10% between 2013 and 2014. This is a significant blow to Thailand’s growth, as the tourism industry accounts for around 9% of Thailand’s GDP.

Investor confidence in military leaders remains low

Stability has been restored, thanks to the martial law which lasted for 10 months and restrictions such as ban on political gathering of five people or more. However, the military government has found stimulating economic growth more difficult, since it requires more extensive efforts from Prime Minister Prayuth Chan-Ocha.

Thailand’s economy in 2014 grew at only 0.7%, hitting a record three-year low and posting an estimated loss of $12 billion. The consumer price index in April increased 0.02% from the previous month, the biggest drop in over five years and a sign of contraction in consumption.

Political turbulence in Thailand continues to threaten growth prospects. Economic experts have highlighted that business has held back on investment planning and consumer confidence remains low. Forecasting group FocusEconomics estimates Thailand will grow 3.7% this year; Nomura has an even lower forecast, which predicts 2.7% growth. Both are lower than Thailand’s central bank forecast of 3.8%.

Although the governor of the Bank of Thailand, Prasarn Trairatvorakul, said in a CNBC interview the political situation in Thailand is more stable than a year ago, and the public is looking for “more continuity”, the government remains too focused on political reform and has neglected efforts in the economic realm. The benefit of a delayed election for the economy will depend on what the government has on its political agenda.

Kasem Prunratanamala, an analyst at Malaysia-based banking group CIMB, said it “has been a year since the coup, and we have yet to see much infrastructure spending”. It is a continuation of the military-ruled government, but perhaps worse, a continuation of poor economic growth performance from the government — which seems increasingly likely — if forecasts are believed.

Categories: Asia Pacific, Politics

About Author

Qingzhen Chen

Qingzhen is a GRI Senior Analyst and a research analyst for an international information company. Her research focuses on China and the Asia Pacific. Previously she was a market researcher for PwC. She has gained regional knowledge from internships with the UNDP, China Policy, and the Royal United Services Institute. She holds a BA in Politics and East European Studies and an MSc in Security Studies from University College London.