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The research report, published on Tuesday, said the direct impact on the economy would come from external trade and fund flows, including direct investment and portfolio flows.

Private-consumption recovery will be limited, due to the political turmoil. The economy will depend more on government spending and investment, as well as quasi-fiscal stimulus packages via state-owned specialised financial institutions.

Export growth has held up surprisingly well so far, driven by both price (commodity inflation) and volumes. However, leading indicators show signs of a global economic slowdown, with the Group of Seven's industrial-production growth decelerating sharply.

The report said that with lower support from commodity inflation, export growth in nominal US-dollar terms would decelerate to 10 per cent in 2009, from 20 per cent in 2008.

SCBA Research has lowered its 2009 real private consumption growth forecast from 4 per cent to 2.5 per cent, slightly under the 2.6 per cent in first half of 2008. Factors that support private consumption recovery include real wage growth, farm income, and inflation outlook. Real-wage growth improved from 0.7 per cent in 2007 to 7 per cent in the first half of 2008.

Farm income growth was above 50 per cent year on year in the second quarter of 2008, compared to 17 per cent year on year in 2007. Inflation has dropped sharply from 9 per cent in July to 6 per cent in September due to lower oil prices, and the government subsidies on water and electricity for consumers.

However, the current political turmoil, which seems unending, brought the September Consumer Confidence Index down to 69.5, its lowest since the beginning of this year. The low consumer confidence will have the greatest impact on consumption of durable and semi-durable goods, including motorcycles and cars, the report said.

SCBA Research said private investment has been relatively underperforming. "While private investment has correlated well with private consumption in the past, we are starting to see a divergence of the performance trend. The private investment trend is now relatively underperforming the trend of private consumption," the research said.

SCBA forecast that a foreign direct investment (FDI) slowdown would negatively impact private investment. "We have lowered our 2009 forecast of real private investment growth to 2 per cent year on year (compared to 5.4 per cent in first half of 2008) on political instability and the global deleveraging," the report said.

Net FDI inflow was US$5.1 billion (Bt174 billion) in the first half of 2008, contracting 9 per cent year on year compared with last year's inflows of $5.5 billon.

As global financial markets enter a de-leveraging phase (especially in the US, EU and Japan), SCBA Research expects FDI inflow to slow into next year.

Net FDI inflows from the US, EU and Japan together accounted for 50 per cent of total FDI inflow to Thailand.

"It is clear that Thailand's economy will have to rely on domestic demand as global economies deteriorate. Regardless of who wins the majority of the parliamentary seats, we expect the government to focus on domestic demand stimulus packages, for example grassroots lending via state-owned specialised financial institutions and mega-project investment," the research said.

SCBA expects the baht to depreciate in the short term but appreciate in the longer term.

"In the shorter term, we expect the global deleveraging theme to lead to a strong outflow from the equity market in Thailand and thus to depreciation of the baht.

"However, for the longer term, baht movement is largely driven by dollar movement. We expect the Treasury's bail-out plan to widen the US fiscal budget deficit, which will lead to a wider current account deficit gap and dollar depreciation against major currencies and the baht.