Thai protesters gather in front of the Royal Thai Army headquarters on September 23, 2020 in Bangkok, Thailand.
Lauren DeCicca | Getty Images
As protests continue in Thailand, an economist at Nomura warns that the unrest could hinder the country's economic recovery from the coronavirus pandemic.
"(The protests) could potentially delay, if not derail, the economic recovery. You know Thailand has flattened the Covid-19 curve with relative success," Euben Paracuelles, Asean chief economist at Nomura, told CNBC's Street Signs Asia "on Thursday.
Thailand is no stranger to political unrest as it saw one of the tallest military coups in modern history.
Demands by protesters in the current riots include constitutional amendments and an unprecedented call for monarchy reform – traditionally a taboo subject that could result in protesters being jailed under the country's laws that protect the monarchy and prohibit insulting the king and his Family.
To us this looks like a lengthy process, a long kind of political … stalemate.
Chief Asean Economist at Nomura
Historically, increasing political uncertainty "tends to have a direct impact" on the economy – particularly business sentiment or overall investment spending, Paracuelles said.
This could even have implications for "all-important financial policy," added the economist.
"With the (Bank of Thailand) under relatively pressure, a lot will depend on how much the government can actually spend and if there is political uncertainty I think that could be at risk," he said. On Thursday, the Thai central bank kept its key rate unchanged at 0.5%.
Why does Thailand have so many coups?
Currently, Nomura is "relatively cautious" about the growth outlook for the Thai economy and expects a decline of 7.6% for the year.
"This is really the weakest in the region, although … they treated Covid relatively well," said Paracuelles. For its part, the Bank of Thailand estimates that GDP could contract by 7.8% in 2020 according to the latest data on its website.
Nomura's Paracuelles said the Thai economy had been plagued by "many structural problems" that existed before the coronavirus pandemic.
"For example … the huge dependency on the tourism sector – which we won't see again anytime soon – is really going to hurt them," he said. "It has a lot of implications for the rest of the domestic economy, which is also struggling with things like aging and lack of competitiveness."
The government's "problem" with tax execution
Paracuelles said the Thai government still had "some" leeway, despite the execution problem.
"For this current fiscal year, they have only achieved about 45% of the total credit fund allocated 60% budget, which is about 1 trillion Thai baht (about $ 31.63 billion)," added the economist that Nomura expects the sub-expenses are carried over to the next financial year.
"Much depends on how persistent the government can be in implementing the actual measures. So far, the track record has not been great," he said.
Given the political uncertainty, there is a risk that the government will take populist measures to appease the demonstrators. "It's hard to say right now," how effective this will be, he added.
"If you look at the demands of the student protesters, it is very difficult to meet them in the sense that they want constitutional changes, even reforms within the monarchy that are unknown in Thailand," Paracuelles said. "It looks like a long process to us, a long kind of political … stalemate."
– CNBC's Yen Nee Lee contributed to this report.