Thailand is in deep mourning as the passing of King Bhumibol Adulyadej ends a glorious reign of 70 years during which Thailand fended off immense external threats and internal instability, while transforming itself from a poor agrarian country into a middle-income Asian tiger. There is little question that the king’s long years of devotion to his people elicited an extraordinary level of public adulation. Consequently, his departure from the scene is bound to cast a pall of uncertainty and sadness over the Thai economy. Even before the announcement of his death, the Bank of Thailand had warned that the economy would slow in 3Q while the Purchasing Managers’ Index for September showed clear signs of deceleration, including a sharp drop in new business orders.
Our assessment is that, while 2H2016 will show a deceleration, the Thai economy is likely to be resilient over time, particularly as some of the factors that have exerted a drag on the economy fade away. Much will depend on politics, though — how the transition to the new reign is managed in the short term and, over the longer term, how the long political crisis is finally resolved.
Near term: A recovery temporarily interrupted
Until the September purchasing managers’ surveys showed a loss of momentum, Thailand had seemed to be overcoming the malaise that enveloped it during the years of political instability culminating in the military coup of 2014. The economy was gaining steam as seen in a range of indicators: