Political Instability Curbs Thailand's Economic Growth

The economic growth of Thailand is mostly sustained by exports. However, recently a political crisis over several months continues to make its local consumption and investment slump and even curbs economic growth. That is to say, political situation plays an important role in economic growth which is mostly estimated with GDP.

The National Economic and Social Development Board said the second quarter gross domestic product is 4.9%, year to year percentage change, slowing from 6.1% rate in the first quarter.

At the same time, exports in the second quarter increased by 16% from a year earlier. Agricultural and electronic products are the majority of exports.

The political situation of Thailand leads many business to delay investment decisions. Free-trade talks with Japan and the U.S. are also postponed until the political situation turns better.

On a quarter basis, GDP grew to 1% compared with 0.8% in the first quarter. But on an annualized basis, growth in Thailand has slowed. The forecast for 2006 GDP growth has been narrowed from between 4.2% and 4.9% to between 4.2% and 4.7%. The Thai economy is 4.5% in 2005, slowing from 6.2% in 2004. Central bank Gov. Pridiyathorn Devakula implied that fiscal stimulus is the best way to boost economic growth for now because global rates are still rising and inflation remains a concern.

Analyst said that the political uncertainty has affected business confidence and investment. Weak consumer spending which is caused by higher prices and interest rates also contributes to sluggishness.

Thanawat Patchimkul who is the head of research at DBS Vickers Securities said that ÐŽ§Thailand is in a risky position in the coming quarters, as exports have become the single main driver while private and government investment have come under pressure.

Growth in private investment slowed to 3.6% from a year earlier in the second quarter. It increased 7.2% in the first quarter.

The development board said that private investment will come back after Thailand have new elections and government function is well-developed. It is because that this may restore investors` confidence. Restoring confidence among investors becomes the most important method to recover Thailand economic growth.

Mr. Ampon said ÐŽ§We are starting to see signs of a slowdown in private investment. We need to assure investors that all the government