Economy

What's next for Thai economy following Yingluck sacking?

Why Yingluck's ouster hasn't made a difference
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Why Yingluck's ouster hasn't made a difference

The sacking of Thai Prime Minister Yingluck Shinawatra could lead to further political unrest in the country, economists said, prompting some to review their growth forecasts.

Following months of political turmoil, Thailand's Constitutional Court ruled to remove Yingluck on Wednesday, along with nine other cabinet ministers. Yingluck was found guilty of abuse of power related to the removal of Thawil Pliensri from the post of National Security Council secretary general in 2011.

Global research house Capital Economics said in a note that if a resolution was not found soon, their below consensus 2 percent gross domestic product (GDP) growth forecast for 2014 would come under threat. Meanwhile Japanese investment bank Nomura said the ruling added downside risks to its 2.4 percent growth forecast.

Read MoreThai stocks drop as court says PM should step down

Thai stocks fell 0.3 percent at Thursday's open. The market fell 18 percent between late October and early January this year when the political crisis first came to a head. It has since rebounded 8.5 percent year to date.

"The decision leaves the country's political deadlock firmly in place and there is now a large risk of renewed violence," said Krystal Tan, Asia economist at Capital Economics.

Wednesday's ruling is likely to upset government supporters who will be displeased with Yingluck's ousting. The government's opponents will also be dissatisfied as part of the caretaker cabinet still remains in place.

Thai Prime Minister Yingluck Shinawatra meets her supporters after the Thai Constitutional Court ruled that she and 9 cabinet ministers are to step down.
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In an emergency meeting following the ruling on Wednesday, deputy prime minister and commerce minister Niwattumrong Boonsongpaisan was given the role of acting prime minister.

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Moody's Investors Services said the ruling was credit negative because in their view it threatens to prolong the country's political crisis, and makes a near-term compromise solution unlikely.

The credit rating agency, said a prolonged crisis, combined with the risk of further violent protests would negatively affect investor and consumer confidence and increase the downside risks to Thailand's growth outlook for 2014-2015.

"The risk of head on confrontations over the coming days is high, with both government supporters and protesters threatening to stage large-scale rallies. The toll that the political upheaval is taking on the economy is also clearly apparent," added Capital Economics' Tan.

The government's supporters have scheduled a protest for May 10th, while anti-government forces have one planned for May 14th.

Investment bank Nomura said in a note that they don't see a massive escalation of protests by the pro-government Red Shirts as a result of the ruling, but said there were risks if the protests turned violent.

"This could lead to more severe economic implications than [those] embedded in our current baseline," said Nithi Wanikpun, director and head of research at Nomura's Thailand research team.

What now?

According to Capital Economics' Tan, there is mounting pressure on Thai politicians to find a way out of the deadlock, and although a general election has been scheduled for July 20, the opposing parties need to find a path for reform first if the standoff is to be resolved.

Read MoreThai court says prime minister must step down

Looking at Thailand for opportunities: Templeton
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Looking at Thailand for opportunities: Templeton

Analysts at Nomura said the risks of further delays to the election date are rising, which could put pressure on private sector spending and restrict fiscal policy to support growth. Nomura said the chance of a new budget being passed for the fiscal year 2015 now appears unlikely, which means there would be a re-enactment of the current budget, which projects a smaller deficit, but is less adoptive of public spending needs.

Thailand's current account balance showed a deficit for the second straight year in 2013 at $2.8 billion, widening from $1.5 billion the previous year.

But some analysts told CNBC they are poised to delve into Thailand's equity market over the next few weeks despite bearish sentiment.

Read MorePolitics won'tderail Thai markets: stock exchange

"We've been looking at the stocks to see if there are opportunities," said Norman Boersma, CIO at Templeton Global Equity Group.

"It's interesting, the stock market usually gets hit but when you look at the [Thai] economy in the past, it hasn't really been impacted as much as you think by this problem. So, in a way, that's an argument that it creates opportunities, because you have fairly stable growth going on. People are expecting a recession again but the last couple times, it didn't really happen," he added.

The latest round of political turmoil in Thailand began in November after the lower house passed a controversial amnesty bill, which critics said could allow former leader Thaksin Shinawatra, brother of Yingluck, to return without serving time in jail. Thaksin fled Thailand in 2008 after being convicted of corruption but remains popular with rural voters; he was ousted by the military as PM in a 2006 military coup.

Tens of thousands of protesters took to the streets of Bangkok to voice opposition to the bill. The bill was eventually rejected by the Senate, but anti-government protests continued and new demands emerged.