Coup around the corner?

Suthep Thaugsuban, leader of the anti-government protests that have rocked the capital, said he would launch a "Bangkok shutdown" on January 13 in a bid to scuttle a general election set for February 2 and force Prime Minister Yingluck Shinawatra and her cabinet to resign.

The protesters, who accuse Yingluck of being a puppet of her self-exiled brother and former premier, Thaksin Shinawatra, reject the poll, arguing they want an appointed "people's council" to oversee reforms before any future vote. In the process they have staged some of the largest street demonstrations in Thai history.

The crisis that has dragged on since early November has hit the Thai economy. In a DW interview, the chief Asia economist of the analytics firm IHS, Rajiv Biswas, examines the impact the political unrest is having on the Thai economy and warns that an escalation of the already volatile situation might prompt a military coup in the Southeast Asian nation.

DW: What impact might the upcoming "Bangkok shutdown" have on the country?

Rajiv Biswas: The risk of renewed violence and clashes between police and protesters is mounting. If violence escalates over coming weeks, there is an increased risk that this could trigger a military coup as the army attempts to stabilize the situation. Indeed, some government supporters are anticipating that the opposition party protests are designed to provoke a military coup. If this happens, this may result in a further phase of violence as Red Shirt groups rally in support of the deposed government.

How is the political turmoil in Thailand affecting the country's economy?

The latest political confrontations have already resulted in a significant deterioration in the economic outlook for 2014, as they have dampened the forecast for domestic consumption and investment during the year ahead. Moreover, it is occurring at a time when Thai GDP growth momentum has already slowed sharply from the 6.5 percent growth rate of 2012 to just 2.7 percent by the third quarter of 2013.

The Thai government itself has just slashed its GDP forecast for 2014, with Thai Commerce Minister Niwattumrong Boonsongpaisan stating in early January that GDP growth in 2014 would be in the range of 3.0 percent to 3.5 percent, much lower than the previous government forecast of four and five percent. This is mainly due to the impact of the political unrest and likely delays to infrastructure spending projects.

What impact have the protests started to have on the country's tourism industry, which drew more than 25 million foreign visitors last year?

The tourism sector, which accounts for seven percent of the country's GDP, has been suffering since the latest escalation of political protests and renewed violence in Bangkok early December. Many governments have issued travel warnings, leading to a significant slowdown in international tourism visits to Thailand. Singapore Airlines has already reduced its weekly flights to Bangkok for some weeks ahead due to declining flight bookings.

What other sectors of the Thai economy are likely to be most affected?

If central Bangkok is disrupted by protestors, this will also create a significant loss in commercial activity in Thailand’s main financial and business hub, resulting in disruption to commerce and the banking and financial services industry, which are mainly located in the capital. Foreign direct investment inflows are also likely to slow down until the political situation stabilizes. However, agricultural sector production, which is a vital part of the Thai economy, should be relatively unaffected.

The Thai manufacturing sector, which is a key part of Thailand’s export economy, has also been relatively unaffected. Road and port infrastructure has also remained operational in previous recent episodes of unrest, so the manufacturing sector is less vulnerable to disruption than service sector firms with central Bangkok operations, unless civil unrest escalates to a much higher level.

How should multinational companies react?

Multinationals should take appropriate precautions to prepare for the risk of escalating violence. Firms in all industry sectors should have clear plans in place for locking down their facilities, supporting their personnel and having well-established procedures for back-up sites in other countries to maintain continuity of critical business operations and managing potential risks of supply chain disruptions.

How will economic decisions be affected if no government is in place by the middle of the year?

At present, the Thai government is in a state of chaos, with protestors likely to blockade or even occupy key ministries in the coming days, preventing civil servants in key ministries from working. Government departments are currently unable to implement meaningful long-term economic policies, and it seems unlikely that a new elected government will be able to take office in the next few months.

Therefore, at best, Thailand will be governed by a caretaker administration in coming months which is unable to make key policy decisions or implement major reforms. If there is a military coup, this will also usher in another caretaker government with an uncertain period of tenure, making it difficult to develop and implement key economic and investment policies.

With no immediate political solution in sight, what are your main concerns for the Thailand?

Although the Thai economy has been quite resilient to domestic political turmoil over the last decade, the deep political divisions are increasing the risks of a much uglier downside scenario of protracted civil unrest and another military coup. Even if some form of caretaker government can manage to prevent civil unrest, this does not create a lasting political solution to Thailand’s deeply divided society.

This political instability could erode the near-term outlook for Thai economic growth, dampening domestic consumer spending as well as corporate investment plans. With such an uncertain economic outlook, foreign investors are likely to increasingly remain on the sidelines for major new projects involving foreign direct investment.

Rajiv Biswas is senior director and chief Asia economist at IHS, a global information and analytics firm. He is responsible for coordination of economic analyses and forecasts for the Asia-Pacific region.

The interview was conducted by Gabriel Domínguez.