Covid-19 and political unrest weigh in on Thailand’s economic recovery

Nomura predicts that the Bank of Thailand will cut its policy rate from 0.5% to 0% in the coming months to support the country’s “fragile” recovery.

According to Euben Paracuelles, chief Asean economist at Nomura, the Covid-19 pandemic and ongoing political protests have left Thailand’s economy in “pretty bad shape”. The recovery is very slow, and it’s one of the slowest and weakest in region.

Thailand is very reliant on tourism and that sector has been decimated by the Covid-19 shock,” the chief Asean economist said in a statement. The “last thing” it needs is something to weaken its recovery, and the protests do just that, with direct implications on spending.

Reuters reported that demonstrations across Thailand have mostly been peaceful, but protesters, counter protesters and police clashed in the worst violence the movement has seen since it began in July. Protesters targeted Bangkok’s police headquarters after law enforcement officials fired used tear gas and water cannons at demonstrators.

Protesters are demanding for the resignation of Prime Minister Prayuth Chan-ocha and reforms to the monarchy. According to one analyst the unrest could lead to another military coup, some six years after the one engineered by Prayuth.

As Paracuelles said on CNBC’s Squawk Box Asia, “What we (have seen) in these kinds of political episodes in the past is, it’s a very big distraction for the government to actually execute on these fiscal plans. Such political uncertainty will weigh on the economy much more in the coming months.” The cash handouts the government planned to disburse have fallen short of initial expectations at a time when Thailand needs “private consumption to stay afloat, to at least provide some buffer” for the economy.