The search is continuing for the perpetrators behind the devastating terror attack on Bangkok’s Erawan Hindu shrine, which claimed the lives of 21 people and injured 120 others. Yet with Chinese, Filipino, Hong Kong, Japanese, Singapore and Taiwan citizens reportedly on the casualty list, the economic fallout from the deadly blast on the nation’s vital tourism sector could be extensive.
As reported by The Diplomat, Monday evening’s blast was timed to cause major damage, with the shrine located on the city’s most popular shopping street being crowded at the time of the attack with tourists and worshippers.
Thai police have released a sketch of the suspect and sought assistance from Interpol in hunting a man described as a “foreigner,” with the investigation broadening from domestic to international terror organizations.
With tourism accounting for up to 20 percent of Thailand’s gross domestic product (GDP), including indirect effects, the damage caused to the nation could extend well beyond the capital. Nearly 25 million foreign tourists visited Thailand last year, helping boost sectors including hotels, restaurants and other service industries.
Thai Defense Minister and deputy junta leader, Gen. Prawit Wongsuwan, told Reuters that the perpetrators “intended to destroy the economy and tourism, because the incident occurred in the heart of the tourism district.”
“Tourism is the last fully functioning engine of economic growth in Thailand,” Credit Suisse economist Santitarn Sathirathai told Bloomberg News. “Growth in the second half of the year could be weaker as tourists, especially from China, react swiftly,” he said, calling for “significant” fiscal stimulus.
Analysts at Australia’s ANZ Bank also warned of the economic damage in this “environment of uncertainty,” with the Thai economy still struggling to recover from its political crisis.
Thai consumer confidence declined for six straight months prior to the attack, and with domestic demand accounting for 80 per cent of GDP, the further weakening of household consumption will only dampen this trend.
Tourism has been a key growth driver this year, but with nations including Australia, Britain, New Zealand and the United States among several countries to issue travel advisories regarding Bangkok and Thailand, the effect on international visitors will be quickly felt. Travel agencies in Hong Kong have already agreed to cancel Bangkok visits until the end of August “for safety reasons,” with others likely to follow.
On Monday, Thailand reported second-quarter GDP growth of 2.8 percent year on year, down from 3 percent in the previous quarter, amid soft exports and consumption. Thailand’s National Economic and Social Development Board downgraded its forecast for 2015 growth to a range of 2.7 to 3.2 percent from its previous 3 to 4 percent, with domestic headwinds stemming from depressed agricultural production and lackluster manufacturing owing to drought. It also reduced its expectations for exports, which are set to contract for a record third straight year.
“A loss of momentum in the tourism sector (the only firm growth driver in Thailand currently) will present a new downside risk to economic activity. At this juncture, Thailand’s near-term growth outlook remains fragile with risks skewed to the downside,” ANZ economists Weiwen Ng and Glenn Maguire said in an August 18 research note.
“A number of frailties within the Thai economy may become exposed in the wake of the bombing if the tourism sector was to suffer. These are not simply growth-related issues, but also include the possibility of a narrower current account surplus and the monetary policy rate being pushed lower.”
According to the economists, previous declines in tourist arrivals following political unrest in 2006, 2010 and 2014 have been “only temporary.” However, the risk is that “a bombing could be perceived as a more negative development than political unrest.”
“In sum, recent economic developments reinforce our view of further monetary easing ahead, with the flexibility provided by the ongoing bout of disinflation. Still, monetary easing alone via the interest rate channel seems insufficient to deal with this and we look for the Bank of Thailand to lean on allowing baht weakness to augment the other elements to create policy space, particularly in the aftermath of the recent [Chinese yuan] devaluation.”
On a more positive note, the economists noted that tourism flows to the Philippines recovered “relatively quickly” following the 2001 attack on a luxury resort at Samal Island, which they described as a “locational attack.” However, the 2002 Bali bombings in Indonesia that killed 201 people from 22 nations had a bigger impact, with the number of foreign tourists dropping nearly 60 percent afterwards, causing the loss of nearly 2.7 million tourism jobs in the Indonesian holiday island.
“At the time of writing, with no confirmed motive or suspects, the economic consequences are likely to be similar to those of a ‘locational’ rather than ‘terrorist’ attack,” ANZ said.
Politically, the incident has raised the risk of the reimposition of martial law or other actions that could prove “disruptive to economic activity,” according to Nomura. With a new constitution to be voted on in September, the attack has come at a politically sensitive time for the ruling military junta.
However, Thailand has shown resilience in the past, having bounced back from frequent coups, floods, riots and tsunami. The quick identification and apprehension of the Bangkok blast’s culprits could prove essential in limiting the economic fallout from this latest crisis for Southeast Asia’s “land of smiles.”