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Thailand's protest and its impact on the economic recovery

Authors: Hteik Tin Min Paing, Vedika Bhagat Region Head: Hteik Tin Min Paing

Editor: Praharsh Mehrotra


The year 2019 and 2020 have been difficult for Thailand as the country struggles to rekindle its shrinking economy. The growth rate dipped from 4.1% in 2018 to 2.4% in 2019 and -5.9% in 2020 as the country has faced billions of losses in the tourism sector brought about by Covid (Economic Intelligence Unit, 2020). It was also one of the earliest countries that managed to implement a quick lockdown and staunch the virus spread to an extent. However, hope for normalcy has been knocked back with the country’s recent political unrest which could exacerbate the economic crisis and influence its path to recovery.

How it started

Thailand has a long history of power struggle between its monarchy and pro-democracy supporters. In recent years 2017 and 2018, plaques and monuments in memory of the end of Thailand’s absolute monarchy have gone missing and confiscated by the authorities. In July 2020, young activists installed a plaque in Bangkok’s royal district to show disapproval over the missing monuments only to find the monument taken away within a day. That has led to thousands of protestors marching through central Bangkok.

Thailand’s Already Hard-Hit Economy

Thailand’s contribution of travel and tourism made up about 21.6% of overall GDP in 2018 (Thailand Contribution of travel and tourism to GDP (% of GDP) 1995-2018, 2018). The number of tourists visiting Thailand has increased to almost 40 million in recent years. That number has dropped to nearly zero due to the travel ban initiated in March 2020 (Tourism Statistics Thailand 2000-2020 2020). As a result, the contribution of tourism to the overall economy was estimated to fall to 5.65% of GDP as of the first quarter of 2020.

On the other hand, Thailand’s baht has been appreciating over the years from above 35 baht to one USD in 2016 to the band of 30 as of 2nd and 3rd quarter of 2020 (XE Currency Charts 2020). This has made baht one of the strongest currencies of any emerging market in the world. One of the main reasons that has led to the massive appreciation is due to a huge surplus in the current account of more than $30 billion which is the result of imbalance in the economy management. The number is even expected to hit a record of $33.8 billion in 2020 (Polkuamdee & Sangwongwanich, 2020). As such, the negative impact on currency appreciation due to the less demand of Thai baht has been outweighed by the enormous surplus in the current account.

On the surface, it seems favourable for Thailand to maintain a strong currency as an economy since it means cheaper imports and more spending power for its citizens. However, this could lead to a disastrous situation given the current macro environment and the nature of the country’s economy. Being a country with more than 70% of GDP coming from tourism and export, strong currency means more expensive travel expenses for tourists and foreign countries that import Thailand’s products (Thailand trade statistics 2018). With the current travel shutdown, the effect of strong currency on the tourism sector has not come into play yet. However, in light of the global economic slowdown and less spending power in general, this could only aggravate the tourism sector even more after the country has lifted its lockdown. As for the export sectors, it has lost about 200 billion baht just in the first five months of 2020 (Thailand's Surging Baht Hurting Exports and Tourism 2019) . This has led to small and medium-sized companies unable to expand their businesses, pay bonuses or incentives to its workers. As a result, the monthly income of 70% of Thailand’s national workforce has dropped by 47% during the pandemic.

All in all, Thailand is arguably one of the hardest hit economies in Southeast Asia due to the nature of its economy which depends very much on tourism and export income. The situation is made worse by the current account surplus which has been ongoing for a few years. With the ongoing political unrest, this put Thailand in an interesting situation as the government is now forced to tackle major challenges at the same time.

The Impacts of Protest on the Recovery Path

The protest could be seen as a major hindrance towards implementing both social and economic measures for Thailand’s economic recovery. The central bank has estimated that it will take at least two years for the economy to recover to pre-pandemic level (Thanthong-Knight & Nguyen, 2020). Large gathering and increased interactions evidently go against social distancing measures. The economic recovery also depends very much on the consumer sector as Thai Prime Minister Prayut Chan-o-cha has aimed towards increasing consumer spending (Hermesauto, 2020).

In the short term, one initiative of the government is to reduce the interest rate from 0.5% to 0% in the coming months to drive consumption. However, this demand-led recovery plan will not be an easy one as consumers’ confidence in spending and investments has been further derailed by the ongoing protest (Thanthong-Knight & Nguyen, 2020). One evidence could be observed from the effects of mechanics in the financial market of Thailand. Giant property development and investment companies such as Central Pattana Pcl and Asset World Corp. with majority of assets in shopping malls have seen their share prices losing value by as much as 30% to 40%. This could lead to more investors buying safe haven assets such as government bonds. However, this goes against Thailand government’s demand-led recovery as the protest intensifies, more investors will likely shift away from private consumption & investing into government bonds . As such, it is expected that Bank of Thailand will end up injecting more money into the country through buying government bonds so that the money supply in the country remains high enough and creates more demand for consumption. In a nutshell, the protest will deal a great damage to the economy which has already been hurt badly by the Covid as it goes directly against the government’s recovery plans and initiatives.

The protest could also have potential long term consequences for the country as well. One example could be observed from the history of a neighbouring country, Myanmar which saw the military’s forceful confiscation of the power to stabilize the country by using demonstrations and social unrest as an excuse during an infamous 8888 uprising of young students to overturn the dictatorship in 1988 (Meixler, 2018).

What lies ahead for Thailand

Redirecting fiscal funding from emergency measures to temporary projects for job development by increasing firm engagement in public procurement is one way to tackle the challenges. In addition to this, it includes allocation of resources towards worker development in terms of training and technology adoption. Secondly, a key factor to reviving its economy is keeping a check on how fast Thailand can open up to tourists, bearing the fact in mind that the tourism industry is the primal revenue generating sector for Thailand as it generated about US$60 billion in revenue last year. The authorities have taken a major step towards this by granting long-stay visa permits. Adequate social welfare measures and Government spending and the aid to other parts of the economy are the only hope for Thailand 's economy.

By declaring a state of emergency in the capital city of Bangkok, the government has effectively terminated the protests, rendering all public demonstrations illegal. Furthermore, to curb the increasing number of demonstrations, the police have begun to implement tear gas and riot police as well as to close mass transit stations. All in all, Thailand government's attempts to discourage protests have not beaten down the will of the youth.Through their sustained protest marches, protesters will continue to push for a full reform of the Thailand government, and with the continuing brunt of the protests, it is unclear if Thailand will achieve economic stability in the short term. There are also undesirable long-term risks in the picture and it is interesting to see where this protest will lead to. As of now, new protests will bring more pressure on the Thailand economy, which is still frail due to the effects of the outbreak of Covid-19.


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