Overview
- Resurgent student-led protests demanding constitutional reform and monarchy changes have worsened Thailand’s already fragile economic outlook.
- The political situation remains fluid with multiple scenarios for how the unrest could evolve.
Scenario Analysis
| Scenario | Probability | Description |
|---|---|---|
| Prolonged stalemate | 60% | Political deadlock lasting months, similar to 2013-14 unrest |
| Protests lose momentum | 10% | Movement fades away |
| Escalation to violence | 10% | Short-term violent clashes akin to 2010 |
| Major government concessions | 20% | Significant reforms end protests soon |
Economic Impact
- 2020 GDP Growth: Forecast downgraded to -6.9%, worst since the 1997 Asian Financial Crisis.
- Q4 2020 GDP: Expected to shrink by -7.4% year-on-year, worsening from Q3 (-6.4%).
- Key Drag: Sluggish domestic demand recovery, slow fiscal stimulus implementation; tourism already weak, so minimal further impact from tourism now.
- 2021 GDP Forecast: Revised down to 3.2% growth from 3.8%, signaling a weak recovery relative to ASEAN peers.
- Growth expected to turn positive only by Q2 2021, supported mainly by low base effects.
- Policy Response: Expectation of two 25 basis points interest rate cuts by the Bank of Thailand by Q1 2021, pushing the policy rate to a record low of 0%.
Currency Outlook (THB vs USD)
- Investor surveys suggest:
- 41.7% expect modest THB depreciation (0–2%) if conflict prolongs.
- 19.4% expect 2–4% depreciation.
- 2.9% foresee depreciation >4%.
- Notably, 35.9% expect THB appreciation due to improved global outlook.
Additional Notes
- Tourism, a key GDP driver (11.5% of GDP in 2019), is already severely impacted by Covid-19.
- Political unrest compounds pandemic effects, further depressing domestic demand and delaying tourism recovery.
- Limited tourism rebound expected in H1 2021, with improvement anticipated in H2 if political tensions ease.
Summary
Thailand’s ongoing political protests threaten to deepen an already severe economic contraction amid the pandemic. The economy is projected to contract sharply in 2020 with only a sluggish recovery in 2021, driven by fragile domestic demand and constrained tourism. Monetary easing via interest rate cuts is expected to support recovery efforts, while investor sentiment on the Thai baht remains cautiously mixed.
