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June 26, 2017

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Thailand military coup won't restore GDP growth, confidence: Moody's

The military coup will neither restore investor confidence in Thailand nor help its economy to avoid a cut in its growth forecast this year of 2-3 percentage points from its pre-crisis 4.5 percent if the political impasse persists for the rest of the year, according to Moody's Investors Service. Moody's said in its updated "Credit Outlook" publication yesterday that last Thursday, the Army suspended the Constitution and ousted the government, two days after declaring martial law.

Moody's currently assigns Thailand a sovereign rating of "Baa1" with "stable" outlook. However, the coup is credit-negative, underscores the country's perilous politics and will not restore investor confidence nor ease downward pressure on the gross domestic product, as reflected by real GDP trending far below its potential growth rate this year.

The National Economic and Social Development Board (NESDB) also recently cut its view for full-year 2014 GDP growth to 1.5-2.5 percent from 3-4 percent estimated last November, when the anti-government political turmoil first surfaced.

Army chief Prayuth Chan-ocha in a statement said the coup was necessary to forge a way out of the country's political crisis. The military's decision to abrogate the 2007 Constitution, which had reaffirmed the country as a democracy with the rights of free speech and assembly, marks the country's second coup since 2006, when the military ousted then-prime minister Thaksin Shinawatra.

However, because the military lacks electoral legitimacy, it faces the Herculean task of resolving intractable divisions between the anti- and pro-democratic forces.

The period immediately following the 2006 coup was marked by policy drift. Although the country's economic and financial fundamentals held up relatively well, political turmoil and uncertainty stymied more dynamic development of the economy. Consequently, Thailand's sovereign credit quality has remained static, as indicated by Moody's "Baa1" rating both during military rule and since.

First Contraction Since 2011

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