Thai Competitiveness Challenged by Political Polarization, Labor Costs

Thailand's competitiveness is being challenged by deep political polarization since the 2006 coup d'état, says Moody's Investors Service.

Thailand's scores in the Global Competitiveness Index have weakened since 2006, whereas regional competitors, like Indonesia and the Philippines have been catching up.

Moody's states that challenges to the country's competitiveness are also seen in rising labor costs, and structural factors, such as demographic changes and a falling public investment ratio.

Moody's views that the coup d'état of May 2014 has likely, for now, put a floor on deteriorating consumer and investor confidence.

Reform delays could eventually negatively affect the sovereign's credit profile, which has largely remained immune to the country's political disturbances.

But progress in structural economic reform likely hinges on reduced political uncertainty, otherwise competitiveness and economic growth would further erode over the medium term.

Thailand's diversified and competitive economy is a credit  strength for the sovereign's Baa1 government bond rating.

Moody's assessment of the country's economic strength is supported by the competitiveness of its manufacturing sector.

The sophisticated manufacturing base has helped Thailand fend off homemade political as well as external and domestic economic shocks.

Resilient growth

The Kingdom's growth has remained resilient during the politically turbulent periods in 2006, 2008, and 2010.

However, Thailand's trend growth has slowed sharply since late 2013. And anti-government protests between November 2013 and May 2014 have negatively affected new investments and the implementation of long-term structural economic policy measures.

Moody's report states that the experience during the recent period of political unrest has shown that Thailand's sovereign credit profile has remained largely immune to the episodes of political disturbances since the 2006 coup.

Nonetheless, improved political stability would likely provide a more favorable environment for foreign and domestic private investment, which in turn is needed to complement public investment.

However, Moody's notes that this will also most likely mean further delays to, or only partial implementation of structural reforms. In addition, if this was to translate into multiple years of below trend growth, this could eventually be negative for Thailand's sovereign credit profile.


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