ECONOMISTS who argue that Asia will lead the global economic recovery this year are usually quick to exclude Japan from the prediction. This makes sense. After all, the heavily indebted North-east Asian country is widely expected to grow by no more than 1.7 per cent this year.

But should commentators be excluding other countries as well? Thailand, for example, could turn out to be another exception.

A hopeful Thai Prime Minister Abhisit Vejjajiva told reporters earlier this month that he expected the local economy to expand by at least 3.5 per cent. But the political situation remains volatile, and growth could turn out to be well below that figure.

Based on current projections, Thailand is already shaping up to be a laggard. Economic powerhouses China and India are expected to expand by 9.6 per cent and 7.7 per cent respectively. Thailand stands near the bottom of the pack even among the generally lower-forecasted growth rates for South-east Asian nations.

Few would deny that Thailand’s economic outlook has improved markedly in recent months. Last November, exports grew for the first time in 13 months, enabling the country to join Malaysia and South Korea in reporting a turnaround in exports as the global recovery gained momentum.

Observers also believe the implementation of the Asean Free Trade Area, which came into force on Jan 1, will help Thai exporters penetrate key regional markets. Electrical and electronic goods in particular are expected to do well.

Recovery in domestic demand is expected to be slower, but even here there are grounds for optimism. One widely tracked consumer confidence index prepared by the University of the Thai Chamber of Commerce showed that sentiment last month rose to its highest level in 16 months.

The main caveat when assessing Thailand’s economic prospects, however, is the nation’s continuing lack of political stability. The economic impact of the long-running conflict, which began with the ouster of controversial prime minister Thaksin Shinawatra in 2006, is obvious.

Private investment, which grew at about 12 per cent per annum a few years ago, has virtually ground to a halt. Bank lending remains at around two-thirds of what it was in the 1990s.

And while at least some of last year’s 43 per cent fall in foreign direct investment (FDI) was probably due more to the global financial crisis than domestic political uncertainties, the former does not explain everything. In Indonesia, which held parliamentary and presidential elections last year, FDI fell by only 28 per cent. Neighbouring Vietnam experienced an even milder 13 per cent decline.

For decades, foreign investors in Thailand took little notice of the numerous military coups that plagued the country. But the popular wisdom that the resulting political uncertainties rarely had much practical effect on business changed in November 2008, when anti-government protesters occupied Bangkok’s airports for a week.

The resulting disruption didn’t just scare away tourists. It also forced the cancellation of business meetings and blocked air freight routes. Then there are the frequent demonstrations in the capital, which disrupt traffic and carry with them the possibility of violence between rival groups.

The Map Ta Phut controversy is yet another issue weighing on the minds of businessmen. Work on 64 projects in the country’s largest industrial estate in Rayong remains halted under an Administrative Court injunction after investors allegedly failed to carry out the constitutionally required health and environmental impact assessments.

And while optimists can reasonably expect the government to get around this problem in the coming months by establishing a suitable supervisory body and issuing the necessary regulations, there is no sign yet that more pressing political issues are about to be resolved.

Indeed, political tension is likely to escalate in the coming weeks as rival groups await a Supreme Court decision on whether the state can seize US$2.2 billion (S$3.1 billion) worth of Thaksin’s assets. The latter were frozen by a military-appointed government soon after Thaksin was removed from power. The court is due to hand down its decision on Feb 26.

Mr Abhisit has managed to stay in office long enough for his government to implement a 116.7 billion baht (S$5 billion) stimulus package in the first half of last year, and plan for an additional 1.3 trillion baht stimulus over the next three years.

But the Prime Minister has not been able to resolve the more fundamental conflict between the urban middle class and the rural poor that has divided the country so badly. As a result, no matter what the court decides next month, violent clashes between supporters and opponents of Thaksin will be difficult to prevent.

Thailand has many things going for it economically. But it is also the one country in Asia most likely to shoot itself in the foot this year.

Copyright © 2010 Singapore Press Holdings Ltd