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Protests in Thailand might ‘derail’ its financial restoration from Covid-19, warns Nomura

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Thai protestors rally in front of the Royal Thai Army Headquarters on September 23, 2020 in Bangkok, Thailand.

Lauren DeCicca | Getty Images

As protests continue to sweep across Thailand, one economist at Nomura warns the the civil unrest could hinder the country’s economic recovery from the coronavirus pandemic.

“(The protests) could potentially delay, if not even derail, the economic recovery. You know, despite Thailand (being) relatively successful in flattening the Covid-19 curve,” Euben Paracuelles, chief Asean economist at Nomura, told CNBC’s “Street Signs Asia” on Thursday.

Thailand is no stranger to political turmoil, having seen one of the highest number of military coups in modern history.

Some of the demands from protesters in the current civil unrest include constitutional amendments and an unprecedented call for reforms to the monarchy — traditionally a taboo subject that could leave protesters jailed under the country’s lese majeste laws, which protect the monarchy and forbid insults to the king and his family.

To us, this looks like sort of a long drawn-out process, a long sort of political … stalemate.

Euben Paracuelles

Chief Asean economist at Nomura

Historically, increased political uncertainty “tends to have a direct implication” on the economy — especially its impact on business sentiment or overall investment spending, Paracuelles said.

It could even have implications for the “all important fiscal policy,” the economist added.

“With (Bank of Thailand) relatively hamstrung, I think a lot will depend on how much the government can actually spend and with political uncertainty, I think that might be at risk,” he said. On Thursday, the Thai central bank kept its key policy rate unchanged at 0.5%.

Why does Thailand have so many coups?

At present, Nomura is “relatively cautious” on the Thai economy’s growth outlook and expects a 7.6% decline for the year.

“That’s really the weakest in the region even though … they’ve handled Covid relatively well,” Paracuelles said. For its part, the Bank of Thailand estimates GDP could contract by 7.8% in 2020, according to the latest data on its site.

Paracuelles from Nomura said the Thai economy has been plagued by “a lot of structural problems” that existed even before the coronavirus pandemic.

“For example … the very large reliance on the tourism sector — which we don’t see bouncing back anytime soon — is really gonna hurt them,” he said. “That has a lot of spillovers into the rest of the domestic economy which is also struggling from things like aging and the lack of competitiveness.”

Government’s ‘problem’ with fiscal execution

Paracuelles said the Thai government still has “quite a bit” of fiscal room to maneuver, though the problem lies with execution.

“For this current fiscal year, they only managed to do about 45% of … the 60% total budget allocated from the borrowing fund, which is about 1 trillion Thai baht (approx. $31.63 billion),” the economist said, adding that Nomura expects the underspending to be carried over into the next fiscal year.

“A lot rests on how much the government can persist on implementing the actual measures. So far, the track record has not been great,” he said.

Against the backdrop of political uncertainty, he said, there’s a risk the government may resort to populist measures to try and appease the protesters. It’s “hard to say at this point” how effective that’s going to be, he added.

“If you look at the demands of the student protesters, it looks very difficult to meet, in the sense that they want constitutional changes, even reforms within monarchy, which is unheard of … in Thailand,” Paracuelles said. “To us, this looks like sort of a long drawn-out process, a long sort of political … stalemate.”

— CNBC’s Yen Nee Lee contributed to this report.

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Katherine Clark