Yesterday’s declaration of a state of emergency in Thailand could mark the start of a dangerous escalation in the confrontation between street protestors and the government. But while the stand-off will probably continue for a while, we still believe the most likely outcome is a largely peaceful transition to new elections. Accordingly, we expect that the impact on the economy will be relatively small, that Thai markets will perform well this year, and that policy rates will move up by mid-2010.
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