Thailand Political and Economic Outlook 2011 and Beyond

This hub takes a look at the political and economic outlook of Thailand for 2010-2011 and beyond. The main source of this outlook is the Economist Intellgence Unit (EIU). According to the Economist Intelligence Unit report filed September 2010, the following are the highlights of Thailand's political and economic outlook for 2010-2011:

· Even though Thailand currently enjoys a relative calm following the violent end to antigovernment protests in mid-May, Thailand’s political crisis does not appear to be nearing an end.

· Recently, Thailand’s current Prime Minister managed to strengthen his hand, but he does not appear willing to risk calling an early election.

· The government will continue to run a budget deficit for the next two years; the shortfall will average 2.8% of GDP. The Bank of Thailand (BOT, the central bank) will tighten monetary policy.

· Owing to the strong performance of the economy in the first two quarters of 2010, the Economist Intelligence Unit has revised up its GDP growth forecast for the year as a whole from 4.1% to 7%. Growth will moderate to 4% in 2011.

· Consumer prices will rise in 2010 after a year of deflation in 2009. However, inflation will not accelerate rapidly, partly because of the strength of the baht, which has appreciated sharply against the US dollar in recent months.

· Thailand.s exporters are enjoying a rapid increase in revenue as a result of the recovery of the global economy, and the current account will remain in surplus in 2010-11.

Thailand is located in Southeast Asia and is part of the Association of Southeast Asian Nations (ASEAN). It is bordered by Cambodia on the east; Laos on the east and northeast; Burma (Myanmar) on the northwest and west; and Malaysia on the south. It has a long peninsula on the south which is nearly surrounded by the Indian Ocean on the southwest and the Gulf of Thailand on the southeast.

According to the CIA's World Fact Book, Thailand has a population of 65 million citizens, 85% of which are ethnic Thai.

Without a doubt, Thailand's political situation is a mess and Thailand's political outlook for 2011 and beyond does not look pretty.

For just over four years Thailand has endured an intensely adverse domestic political climate. For most of those four years there has been political turmoil between various factions; most notably between the political parties backed up by citizens who are poor and come from rural settings and other parties representing the more wealthy and burgeoning middle class from urban areas.Finally in May 2010, Thailand's domestic political climate became so out of control, the current prime minister ordered a severe crackdown on the opposition that resulted in a relative calm.

However, accordingng to the Economist Intelligence Unit, Thailand's political problems do not appear to be over and Thailand's political outlook for 2011 does not seem to be a positive one.

Current prime minister Abhisit Vejjajiva does seem to be strengthening his hand and gaining more control over the governmental affairs of the country. He has done so by working with a military group to crack down on the  opposition through a campaign of repression. Even though Abhisit is getting stronger and has the powerful military behind him, he is not yet ready to call for early elections. EIU reports that the current situation does not lend itself to elections because all opposition parties are unlikely to support the outcome no matter which party receives the most votes.

Another potential problem that could potentially ad even further uncertainty and struggle to Thailand's political outlook for 2011 and beyond is the health condition of the very popular reigning monarch. The current monarch has long been seen as a stabilizing force in Thailand's domestic affairs, but has not been seen in nearly a year. The king is in his eighties and has been in a state of declining health for some time. Observers are not sure what will happen to the monarchy if and when the king passes away.

According to the forecast of the Economist Intelligence Unit, GDP growth in the Thai economy will come in around 4% in 2011, with political uncertainty continuing to undermine consumer and business confidence. However, as in the first half of 2010, although political risks could hinder future investment, business operations in Thailand (particularly in the country’s industrial zones) are likely to be generally unaffected in any direct way by political unrest. Thus, as long as global demand continues to grow, Thailand’s export-oriented manufacturers should continue to reap the benefits.

It should be noted that EIU consider a "double-dip" recession in the world economy to be unlikely, and believe that the current softening of global growth is best understood as a natural adjustment following a period of unsustainably rapid stimulus-driven expansion since mid-2009.

Political difficulties are nevertheless likely to continue in Thailand to complicate the public sector’s plans for large-scale investment. Furthermore, although the tourism sector is already showing signs of healthy recovery, further bouts of violence in the country would stall this process.

In international trade the Economist Intelligence Unit forecasts that Thailand’s current trade account will remain in the black, but the surplus will decline to the equivalent of 4.3% of GDP on average in 2010-11, from 7.7% in 2009 when merchandise imports contracted even more sharply than exports.

Although the recovery in global demand is slackening, EIU foresees Thailand’s exporters will continue to show growth in revenue and will maintain their competitiveness in a number sectors, most notably electronics and vehicles. The import bill will also rise in 2010-11 as growth in consumption and investment resumes. The increase in imports will be particularly strong this year, reflecting the steep drop recorded last year.