Political vacuum 'damaging'

The Bangkok shutdown by anti-government protesters and the absence of a functional government could shave one percentage point off Thailand's economic growth, says an academic.

"Economic growth this year could come in below 2%, given that the political situation continues and there is no government in place," said Prof Bhanupong Nidhiprabha, the dean of Thammasat University's economics faculty.

Political problems have taken a toll on private consumption and foreign investors' confidence, both considered main drivers of economic growth.

All business sectors will likely be affected by the shutdown, particularly the service sector, as tourists cancel hotel bookings and people working in the transport industry earn less income.

The finance sector is also expected to take a hit, as the shutdown will cause the Stock Exchange of Thailand index to drop further, while commercial bank loans will decelerate due to rising uncertainty, said Prof Bhanupong.

The economy will remain in a slowdown cycle if political developments become more violent or a military coup occurs, he said, adding that a coup would tarnish the country's democratic development due to the Army's involvement in politics.

If the political situation returns to normal and there is an elected government, then gross domestic product growth may reach about 3%.

However, this depends on factors such as domestic consumption and export growth, he said.

Exports are seen as the main factor stimulating economic growth this year, but this is not sustainable because they rely on trade counterparts.

Although exporters can reap benefits from the weakening baht amid the economic recovery in Japan and the US, domestic political turmoil has dampened private consumption and investments, while the new government's fiscal policy is not expected to compensate for a decline in private spending immediately, said Prof Bhanupong

He said it is unnecessary for the Bank of Thailand to lower its policy interest rate further as it is already at a low level and another reduction could encourage more capital outflows.

The central bank's Monetary Policy Committee cut its benchmark interest rate to 2.25% from 2.5% late last November to help the lacklustre economy regain momentum.

However, a rate cut at its Jan 22 meeting is possible if the political situation gets worse or turns violent.

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