Thai economy shrinks with no end in sight to political crisis

BANGKOK - Thailand's economy shrank 0.6 per cent year-on-year in January-March, data showed Monday, as the festering political crisis eroded consumer confidence and frightened off tourists.

The contraction is the first since the last three months of 2011, when the country was hit by massive flooding, and comes as opposition protesters press for the nation's senate to remove a battered caretaker government.

With the protests deep into their sixth month, Southeast Asia's second biggest economy remains without a fully functioning government, cramping state spending and investment in key infrastructure projects.

The National Economic and Social Development Board also slashed its growth outlook for the whole of 2014, forecasting 1.5-2.5 per cent expansion compared to a previous estimate of 3.0-4.0 per cent.

It said jittery consumers reduced spending during the first quarter "due to increasing concerns over the domestic political situation".

A prime minister was toppled this month, while 28 people have been killed and hundreds wounded in street violence since November.

The turmoil has take the sheen off the nation's "Teflon Thailand" reputation -- a reference to its economic resilience despite eight years of political upheaval as well as the devastating floods in 2011.

Consumer confidence has slumped to its lowest level in more than a decade and tourist arrivals dipped by around eight or nine per cent in February and March.

Foreign investors meanwhile are nervously watching the political crisis unfold.

"The stakes are rising," Capital Economics warned in a briefing note. "Private-sector confidence is likely to remain dire until there are at least some signs that the crisis is moving towards a resolution.

"And without a functional government, public spending will stay shackled," it added.

Government 'will not resign'

Anti-government protesters are pressing for the senate, the upper house of parliament, to boot out the embattled government of caretaker Prime Minister Niwattumrong Boonsongpaisan and appoint a new leader.

But Niwattumrong, who replaced toppled leader Yingluck Shinawatra on May 7, insists he still holds the authority to push for elections to find a way through the stalemate.

Senators, at least a quarter of whom are avowed critics of Yingluck's billionaire brother Thaksin, are mulling the case for invoking a clause in the constitution to appoint a leader.

Critics say such a move has no legal basis, while pro-government "Red Shirt" supporters have threatened to rally in Bangkok if the elected government is dumped, raising fears of street clashes between political foes.

A meeting Monday between the caretaker premier and senators opposed to his government ended without agreement.

"The government confirmed that they will not resign, because they say it will be unlawful," Senator Wanchai Sornsiri, an appointed member of the upper chamber, told reporters.

The senate is part-appointed and part-elected.

Last week the chief of the coup-prone army warned the military could intervene to keep order if the political unrest worsens.

His comments came after three anti-government protesters died in a gun and grenade attack by unknown people on a makeshift protest camp near Bangkok's main backpacker district.

Thailand has been deeply divided since 2006 when Thaksin was ousted in a military coup.

He lives overseas to avoid jail for a corruption conviction that he says was motivated by political malice.

But he still commands the loyalty of much of the north and northeast, who have voted for him or for aligned governments in every election since 2001 as a reward for so-called 'Thaksinomics'-- pro-poor policies including a generous rice subsidy scheme, cheap universal healthcare and micro-loans.

Thaksin is loathed by royalist southerners and the Bangkok-based establishment, which includes sections of the judiciary and army. They accuse him of widespread corruption, vote-buying and undermining the revered monarchy.