Thailand Economic Outlook 2014: 3.5% GDP Growth As Political Impasse Drags On Much Longer Than Expected

Thailand’s political vacuum is going to last longer than expected, slashing the nation’s already pitiful 2014 GDP growth forecast even further to 3.5 percent.

Thailand is set to report fourth-quarter GDP growth later this week, and most public economic metrics are pointing downward, as the Southeast Asian nation has was mired in political turmoil for the last few months of 2013. Tourist arrivals grew by just 6.7 percent year-on-year in December, compared to close to 20 percent for the whole year. Investment fell another 0.8 percent month-on-month in the same month, the fourth consecutive month of decline, while private consumption managed to inch up 0.3 percent.

Sadly, the trouble is far from over. While the Feb. 2 election went off without major hiccups, the conflict is not resolved in real terms -- the Election Commission (EC) has yet to announce the final election results, and likely will not for months, due to disrupted advanced voting. As of yet, 28 of the 500 constituency seats have not been filled, and 475 of those seats are needed to form a new government.

The future looks uncertain for Yingluck Shinawatra, who was previously the prime minister and now the caretaker leader as well, according to a research note from Standard Chartered. The biggest risk to her personal political career is a probe into the controversial rice pledging scheme introduced by her administration. If she is found negligent in overseeing the scheme, she could be impeached, or worse, face a year-year suspension from politics, if not both.

These and other less prominent political risks add to the possibility of a much longer gridlock, which would weigh heavily on Thailand’s economic growth for 2014, in particular if planned public investment is delayed until beyond the second half of the year. Analysts from Standard Chartered have adjusted their forecast down from 4.7 percent as a result.

“If a new government is not formed by end-June, the planned budget for 2015 [year starting on Oct. 1 2014] may not be passed in time,” the Standard Chartered note said. “We expect domestic demand to moderate until political stability is restored.”

However, one specter of brightness is visible in the general gloomy outlook -- exports are expected to expand about 9 percent in 2014, supported by improving outlook in developed countries and a weaker Thai baht, following a 0.2 percent contraction in 2013, and will play an important role in keeping the economy afloat.