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Economic uncertainty following death of Thailand’s King

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Significant short-term disruption and greater political instability are almost certain following the death of Thailand’s King Bhumibol Adulyadej, warns Coface, a global leader in credit insurance and risk management.

The world’s longest-reigning monarch – also known as Rama IX – died on Tuesday aged 88.

Revered as a semi-divine unifier of the nation, he has been the only sovereign most Thai people have known. His death is probably the most significant event in the Kingdom since World War II.

During the mourning period, there will be mandatory closure of most domestic business and Thailand’s Prime Minister General Prayut Chan-o-cha has announced that entertainment functions must be "toned down" for a month.

The Prime Minister announced that Prince Maha Vajiralongkorn, the King’s son, will be the new monarch and that Thailand would hold a one-year mourning period.

This quick announcement was done partly to dispel economic uncertainty and particularly to calm foreign investor concerns, said Coface in a special briefing shortly after the King’s death. ??

Domestic demand could be affected as well as tourism in the short term, it says.

“There is also a risk of short-term capital outflows. Indeed, investors’ confidence can be hurt by the uncertain outlook and the Thai baht could face a sell-off.”

However, Thailand has healthy foreign reserves and low foreign currency debt which limits its exposure to currency risk. 

New wave of political instability

The country should experience a new wave of political instability, Coface warns.

But the probability of significant political unrest is low owing to the military’s control of the government.

Also, the Thai people have indicated they are keen to find a peaceful resolution to the long drawn out political conflict.

The country has been experiencing political instability since February 2013 when the then PM Yingluck Shinawatra dissolved parliament. Shortly after General Prayuth announced a military coup – the 14th since 1932. Following the coup, the junta formed a government and promised elections once a new Constitution is adopted.

A successful referendum approved the Constitution in August this year with 61% of voters in favour. This was supposed to lead to a “guided” democracy by early 2018, following parliamentary elections next year. The long-promised elections and the return to a form of democracy could be once again delayed as the grief period will last one year.

Coface says economic growth might slow in the wake of its passing although activity was edging up since the beginning of 2016.

Stabilising figure

Rama IX was seen as a stabilising figure in a country hit by cycles of political turmoil and multiple coups.

Coface notes that Prince Maha Vajiralongkorn does not garner the same level of public respect as his father.

“He is a divisive figure who has been implicated in several scandals. The continuation of the monarchy’s central role is therefore not easily assured.”?

But Coface says the country has always been quite resilient to political instability.

“All in all, Rama IX’s passing constitutes a challenge for the Kingdom but the economic impact should be limited.”

Weak exports

Since the beginning of this year, the Thai economy has shown signs of rebounding (3.5% YoY in Q2) with stronger household consumption and investment reflecting strengthening confidence.

Growth is supported by fiscal stimulus, strong tourism, improvement in farm incomes and low interest rates.

Nevertheless, the economy still suffers from weak exports, overcapacities, high household debt and long political transition. 

Coface’s 2016 GDP growth forecast for Thailand remains unchanged at 3.5%, as downside risks should be limited by the military’s dominance and their willingness to support the economy.

The country risk assessment remains at A4 (reasonable).

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