thegreglowe.com

By GREG LOWE
IN BANGKOK

POLITICAL violence and global economic turmoil caused the Stock Exchange of Thailand to nosedive to a five-year low yesterday. Domestic consumption and tourism will be hard hit by the double economic impact, experts said.

SET closed at 492.34 points yesterday, down 6.88 per cent in trade worth 17.46 billion baht (S$740 million), the first time the index has dropped below 500 points since July 2003.

Trade plummeted as investor sentiment sank in response to Tuesday’s violent clashes, during which police used teargas against anti-government protesters, leaving two dead and around 450 injured.

‘The political confrontation is turning from bad to worse,’ said Warut Siwasariyanon, deputy managing director of Finansa Securities.

Tensions are likely to increase in the run-up to the Constitutional Court’s October 21 ruling in a corruption case against former prime minister Thaksin Shinawatra, who was deposed in a 2006 military coup, he said.

Localised political tension has dampened Thailand’s economy since May, when the People’s Alliance for Democracy started street demonstrations against the People Power Party coalition government, which it says is Dr Thaksin’s proxy.

The alliance has occupied Government House since August 26 demanding the government’s ouster, and its attempts to prevent politicians from entering parliament on Tuesday resulted in the bloody clashes.
Political deadlock is further dampening domestic demand, said Usara Wilaipich, senior economist, Standard Chartered Bank (Thai).

‘Localised political disorder will weigh down on domestic demand, and Tuesday’s events are likely to prevent recovery in domestic consumption and investment,’ she said. ‘These should be helping offset the slowing export growth caused by a synchronised slowdown in the global economy.’

Standard Chartered predicts that GDP will drop to 3.9 per cent next year, from 4.7 per cent this year, prompting Bank of Thailand to cut interest rates by 75 basis points, from the current 3.75 per cent, by Q209.

‘The risk is that if growth decelerates quicker, because of the political disorder, the central bank may have to move sooner than expected,’ she said.

The timing of the escalation in political violence is disastrous for Thailand’s tourism industry, which is now entering peak season, said an analyst at Tisco Securities.

‘Localised political unrest is going to dampen investor sentiment and deter tourists. Occupancy rates have dropped from 75 per cent to 50 per cent as a result.’

‘This is the worst time we have ever seen,’ she added, commenting on how shares in Minor International, one of the country’s leading hoteliers, dropped 10 per cent in value yesterday, and 25 per cent in the past week.

Tourism Authority of Thailand said the demonstrations are highly localised, and should not affect tourists visiting the country.

‘The protests are directed at Members of Parliament and other political figures. These incidents are limited to the administrative centre of Bangkok. The rest of the city is unaffected,’ it said.

Inbound tourism generated 548 billion baht for Thai coffers last year, from 14.4 million international arrivals.

The Thai government apologised for the violence yesterday, while the PAD, academics and some senators have called for Prime Minister Somchai Wongsawat, Dr Thaksin’s brother-in-law, to resign.

Published October 9, 2008
© The Business Times