If five political parties, including Thai Rak Thai and the Democrats, are dissolved, economic growth could slow to less than 4 per cent this year, as foreign investment drops and domestic investment and consumption stalls, said Sayan Chanvipaswongse, deputy secretary-general of the Federation of Thai Industries (FTI).

"Nobody is sure now after the next election which party would win the majority vote and what would be their economic policies," he said. "Exports will remain a star, but if murky conditions stretch to next year, we could lose trade partners to manufacturers in neighbouring countries. Now, foreign companies are withholding investment and Thai companies are also stalling their investment decisions. Under this situation when there is no government, civil servants have no absolute mandate to exercise policies. The best case scenario is for the economy to expand 4 per cent this year."

Jit Siratranont, deputy secretary-general of the Thai Chamber of Commerce, said that if the parties were dissolved, there would be only Chat Thai on the election scene. Then the election, tentatively scheduled for October 15, could enter into a vicious cycle like the April 2 election.

"Will the economy expand 4 per cent? What we want now is the formation of the new government as soon as possible, so that economic policies can be expedited," he said.

While Somkid Anuras, another deputy secretary-general of the chamber, was unsure of the export outlook this year, Katiya Greigarn, chairman of the FTI's electronics and electrical appliances group, said that these sectors should be able to reach their export targets.

"Electronics and electrical appliances exports have expanded 20 and 10 per cent so far this year, as expected. But the negative impacts from the political turmoil will be seen in the future, as the exporters could delay new investment plans," he said.

The Thai economy has been driven by exports, investment and consumption. When investment has been hard hit, consumption tends to drop.

Political uncertainty also casts as thick a cloud over the Stock Exchange of Thailand, as the US Federal Reserve's meeting today where it is expected to raise its policy rate by 25 basis points - a move that could dampen US economic

growth as well as its demand for products manufactured around the world.

"As the Constitutional Court should take some time to consider if the five parties are to be dissolved, this would cast a medium-term impact on stock investment, as the election date would definitely be delayed from October 15," said Adisak Phupiphathirunkul, an analyst at Ayudhya Securities Plc.

An analyst at Zeamico Securities Plc noted that the US Fed's decision had more weight on market sentiment than the political uncertainties.

"Such a decision from the Constitutional Court would take a month or more. But investors around the world are focusing on the result of the Fed's meeting. If the Fed increases the rate by more than 25 basis points as expected to tame inflation, the market could plunge," he said.

Paiboon Narintrangkoon, deputy managing director of Tisco Securities, noted that within the next one or two months, foreign investment will not flow back to the Thai market due to the political turmoil.

"Besides economic risks, political risks exacerbate the situation. Late this year, if Fed's rate movement is clearer and political turmoil is settled to some extent, foreign investors may return," he said.

The Stock Exchange of Thailand index yesterday gained 7.11 points or 1.08 per cent to 666.80 points in thin turnover of Bt7.7 billion, despite a slight drop on Tuesday on concerns about political uncertainty

Expecting the Thai economy to slow, Subhak Siwalaksa, CEO and president of TMB Bank, said yesterday his bank had reviewed its lending growth target this year and reduced it to 5 per cent from an earlier target of 8-9 per cent, due to the political turmoil.

Somchai Jitsuchon, director of the Thailand Development Research Institute, said ongoing political uncertainty has begun to have a greater impact on the economy than concerns over costly fuel. Doubt remains whether the general election can be held on October 15 and when a new government can be formed. It is also unsure when the 2007 budget bill will be approved.

Petchanet Pratruangkrai,

Siriporn Chanjindamanee

The Nation