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Economics – Markets – Strategy
Economics: Thailand
to 5% (vs 5.6% earlier) and 4.7% (vs 5.2% earlier). Domestic demand should still
do much better than the dismal showing in 2007 (assuming we do not actually
see another coup).
No end in sight to political stand-off
We are particularly concerned that there is no end in sight to the political instability
that erupted with anti-Thaksin protests in 2005. As democratic institutions such
as the judiciary and the constitution court were believed to be subverted by expremier
Thaksin, the military justified a coup on the grounds that it is the only
viable solution to non-violently end anti-government protests. Many Thais in
Bangkok even hoped the coup would turn out to be a solution for the political
woes once the military made it clear that this was a temporary move meant to
restore the independence of democratic institutions. Following that, democratic
elections were expected to return stability to the country with the hope that
the Democratic party may return to power. As we know, this did not happen
and political uncertainties have only worsened in 2008. Obviously, staging a
coup again and / or holding fresh elections again will not result in different,
more favourable and stable outcomes. But another coup is certainly a material
risk and would be disastrous for the Thai economy.
One main reason for the return of political instability is that the country is
polarized with people in Bangkok against Thaksin and the (majority) rural Thais
in favour of Thaksin. This means elections are likely to bring some form of
Thaksin’s Thai Rak Thai (TRT) back in power. This, in turn, leads to government
policies and functioning that bring people in Bangkok on streets in anti-government
protests. The charter change agenda is just a policy that has brought out these
deep divisions in the forefront. As such, it appears likely that political uncertainty
is here to stay.
Politics to hurt confidence and consumption recovery
Consumption spending grew by around 3% (QoQ, saar, smoothed) in the last
two quarters, double the rate that prevailed in the preceeding 12 months (Chart
3). Going forward, deterioration in politics implies consumption should stay
below trend (~5%). We expect a continuation of 3% sequential growth ahead
as consumer confidence should begin to deteriorate once again. It is interesting
to note that despite political worries, the “present” and “future” confidence
sub-indices have diverged in the last 12 months (Chart 4). The “future” was
generally expected to be much better than the “present”. In other words a
resolution was always expected for the political woes which were seen as relatively
There is little hope
for an end to the
political stand-off
as elections have
failed to resolve
outstanding issues
Future subcomponent
(Chart
4) of consumer
confidence might
begin to fall
Chart 3: Personal consumption vs avg wages
% YoY % YoY, 2qma
9
8
Chart 4: Consumer confidence - "future" to drop?
Index
98
6
3
0
6
4
2
0
88
78
-3
Mar-
01
Mar-
02
Mar-
03
Mar-
04
Mar-
05
Mar-
06
Mar-
07
Private consumption indicator
Avg wages (RHS)
Mar-
08
-2
68
Mar-06 Sep-06 Mar-07 Sep-07 Mar-08
Consumer confidence: present
Consumer confidence: future
Consumer confidence: future income
115