(Bloomberg) — The suspension of Prime Minister Prayuth Chan-Ocha’s powers by Thailand’s constitutional court is seen denting investor confidence at a time the nation has been actively wooing overseas investors, though the direct economic impact is likely to be muted, according to analysts.
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Political risks may delay investment decisions by companies that were planning to move production facilities to Thailand, according to Amonthep Chawla, head of research at CIMB Thai Bank Pcl in Bangkok. The uncertainty creates a disadvantage against nearby countries such as Vietnam, he said.
The ruling on Prayuth sent stocks and the currency down briefly before they rebounded. While the market was “slightly spooked” by the news, calm returned as investors bet the government will continue as normal, according to Tim Leelahaphan, Bangkok-based economist at Standard Chartered Bank.
Better-than-expected rebounds in tourism and domestic demand will underpin the economic recovery, which isn’t likely to lose momentum unless political unrest mounts and protests turn violent, Amonthep said.
“Rising political risk may affect foreign investors confidence,” Amonthep said. “But the direct impact to economy may be limited as the budget bill already passed.”
Here’s a round-up of analysts views on Prayuth’s suspension:
Standard Chartered (Tim Leelahaphan)
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“Many questions still remain and the decision has spooked the market, but for fundamentals and the economy, nothing has changed. The government will continue and carry out policies as normal”
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“Our core view is that there is more upside than downside in this year and next. The Thai economy is only starting to recover and we’ve seen tourism rebound, while political risks are still low. It’s more political noise at this stage”
CIMB Thai Bank (Amonthep Chawla)
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“There won’t be significant impact on consumer confidence or tourism unless protests against the current government turn violence. We hope that won’t happen as tourism is the main hope for recovery”
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“Prospective foreign investors may wait to see the new government’s policies first. We may be at disadvantage against Vietnam or other countries in that case”
Malayan Banking Bhd. (Yanxi Tan)
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“Markets could look past such bouts of political uncertainty to focus on other key drivers such as Thailand’s current account outlook and the Fed’s tone out of Jackson Hole
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For now, odds still lean toward an eventual favorable outcome for Prayuth, as the court must make a further decision
Kasikorn Research Center (Nattaporn Triratanasirikul)
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“We don’t see significant impact to the economy in the near term as there will be a caretaker prime minister”
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Still, political uncertainty has emerged to be another key risk for Thai economy during “medium term,” which adds to the immediate risks of inflation, higher interest rates and global economic slowdown
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An general election next year also creates some uncertainty
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