Although confident the coup will solve Thailand's political impasse more quickly than other means, some foreign financial houses have already revised their growth forecasts for gross domestic product downwards but anticipate better growth next year once the reform group delivers a respectable government.

Despite the short-term negative impact, they agree the coup could turn out to be positive over time, as the change in power might bring about a more stable and effective government.

In the near term, the Thai stock exchange and the baht will come under pressure, but in the long term sound economic fundamentals should help minimise negative effects on the economy as a whole.

These opinions came from their reports issued on Wednesday, the day after the Council for Democratic Reform under Constitutional Monarchy (CDRM) staged its coup.

United Overseas Bank (UOB) Economic-Treasury Research emphasised: "While the coup could lead to a successful resolution to the current political impasse, benefiting Thailand's economy in the long term, we believe that in the short term, investments and consumption may be dampened further by these developments."

The delay in new elections caused the firms to revise their estimates for 2006 and 2007

GDP growth downwards to 4 per cent and 3.9 per cent, respectively, from previous forecasts of 4.5 per cent and 4.2 per cent, respectively.

Morgan Stanley also cut its growth estimate to 2.4 per cent from an earlier forecast of 3.5

per cent. Citigroup revised its 2006 GDP forecast downwards to 4.3 per cent from 4.5 per

cent before, on reduced investment and tourism in the fourth quarter.

UOB decided to keep its Thai GDP-growth forecast at 4.5 per cent for this year and 4.2 per

cent for next year. It does not expect any sharp adjustment in consumption.

UBS Wealth Management noted that its GDP forecast for 2006 of 4.5 per cent might be reduced by a small amount.

"The economic implications will likely be muted. In terms of GDP growth, we expect no big impact this year, given that the situation will not escalate," its report stated.

For next year, the coup might depress domestic demand further, because uncertainty has increased, so its current forecast of 5 per cent GDP growth is probably 0.5-1 per cent too high, it said.

Advising investors to stick to the Thai market now, UBS thinks the coup is a serious blow for Thailand's longer-term prospects since the risk premium associated with Thai assets will inevitably increase, and this is likely to delay the rerating process of the notoriously inexpensive Thai equity market.

Kim Eng Securities believes the stock market's near-term performance will be partially determined by the CDRM's next steps: whom they select as interim prime minister and for the Cabinet, how they deal with some of the issues from the Thaksin regime - particularly the nominee and PTT issues directly affecting the market - and the time frame for amending the Constitution and holding new elections.

"However, we believe any losses will be short-lived and that the index will soon rebound past the 700 mark," the report said, noting that the coup would end the long-standing political divide, while Thailand's economic fundamentals remained sound and were in fact improving, thanks to a continuing drop in oil prices. Exports remain strong and consumer confidence and investment is expected to pick up speed once a new government is formed.

"Confidence will be more quickly restored if the coup leaders appoint a respected civilian to be prime minister," said Citigroup Global Markets.

TMB Macquarie Research noted that although unexpected and unconstitutional, the coup did unlock an impasse. Without the coup, Thailand would have continued to be ruled by an interim government for a long time, which would have had a severe impact on the entire economy.

TMB Macquarie Research stands by its GDP growth forecasts of 4 and 4.7 per cent for 2006 and 2007, respectively. Growth for 2008 could be 6 per cent on the assumption that the coup hastens political reform and creates a stable government.

On the impact on the stock exchange, Phatra Securities said fund flows would not be reversed. Foreign-portfolio flows have amounted to about US$800 million (Bt29.91 billion) in the past three months.

"We believe flows are likely to continue to be positive, rather than the reverse, into the end of the year, as the political situation clarifies and earnings-revision momentum stabilises," it said.

UOB Economic-Treasury Research reported that while some said the latest event could provide a faster resolution to the political deadlock, risk aversion meant a weaker baht in the near term. As expected, the baht spiked up overnight to 37.75 to the dollar, from 37.20 before the coup. It could head towards Bt38 and possibly Bt38.50 to the dollar, said the bank.

UBS Wealth expects the baht to test resistance levels at 38.60 in the short run. Still, it does not expect the coup to trigger further rate increases by the Bank of Thailand (BOT).

"We previously anticipated that the BOT might cut interest rates by the end of the year on the back of lower inflation and sluggish domestic demand," said the report.

On long-term politics, Phatra Securities showed concern about the mood for discrediting the previous government, "which, if carried to the extreme, could undo positive policy directions, such as economic liberalisation and privatisation".

"Large long-term investors view a coup as a potentially a regressive step that would inevitably increase political risk/volatility in the long term, which, all other things being equal, would increase investment risk in Thailand," it said.