Thailand on Monday maintained economic growth projections for the year despite political mayhem, but analysts doubted the economy's stellar first quarter performance would cancel out the slowdown from the violence.
The stock market dropped sharply despite the government forecast as Bangkok cautiously reopened for business after the most violent riots in modern history. Analysts blamed increased political risk and the delayed effect of the euro zone crisis.
"Investors may be temporarily relieved that a semblance of normalcy has returned, but the political risk remains high and investors will likely be cautious," said Warut Siwasariyanon, head of research at Finansia Syrus Securities in Bangkok.
"The big underlying conflict is still there and the wound is deeper than ever, even as the roads have been wiped clean."
At least 54 people were killed in Bangkok and more than 400 injured in the latest bout of violence that began on May 14. Almost 40 buildings were set on fire last week as the army dispersed thousands of anti-government protesters who had taken over the commercial heart of the city for months.
The state planning agency said the 2010 growth forecast was being maintained at 3.5-4.5 percent, but had been dragged down 1.5 percentage points by the political crisis.
Powered by exports, the $264 billion economy grew a strong 3.8 percent on the quarter in the January-March period, twice as fast as market expectations of 1.8 percent.
"The pace of recovery in the second half of this year will depend on the political outlook, which remains highly uncertain," said Usara Wilaipich, an economist at Standard Chartered Bank.
Prime Minister Abhisit Vejjajiva was also wary.
"The data reflected strong fundamentals of the Thai economy on exports, tourism, domestic consumption, production capacity, as well as private investment," he told reporters.
"But the data we have to keep a watch on is the second-quarter data in May and June which will see the impact of protests more clearly."
Riot-hit company shares down
The stock market was down by 2 percent at 12:30 a.m. ET, as trading resumed after five days. The baht currency was flat.
However, Thai bond yields jumped as the market priced in a likely hike in interest rates in mid-year following the strong growth figures. In early deals, benchmark five-year bond yields surged 8 basis points to 3.20 percent.
"With the violence behind us, the central bank may start looking at raising rates now and that is being priced into the market," said one Bangkok-based trader.
Some analysts however said doubts over the economic outlook could force the Bank of Thailand to keep rates on hold.
Shares of companies hit by the rioting dived in morning trade.
Central Pattana, which operates Central World, Southeast Asia's second largest department store that was burned down in the riots, dropped 8 percent although the company said it expected no significant impact since it was covered by insurance.
Erawan Group PCL, which operates two Bangkok hotels Grand Hyatt Erawan and Courtyard by Marriott was down about 1.8 percent.
Erawan said revenue during April and May would drop 150 million baht ($4.6 million) from last year due to the impact of the protests.
On Monday however, business seemed normal in the city of 15 million, at least on the surface.
Both metropolitan train services, the Skytrain and the underground, operated as normal after starting skeletal service over the weekend following disruptions during the protests.
Trains were crowded, but with enough space to stand comfortably, even in morning rush hour.
"You look around and it feels like nothing has happened," said Dao Pipirom, a 35-year-old market researcher whose apartment is in the business district. "Life goes on as normal now."
"But I still get very agitated when I hear loud noise. I keep thinking it's another grenade blast or gunshot."
Government offices and some schools were also scheduled to reopen on Monday, but a night curfew in the city and 23 provinces was still being imposed.
The red shirt protesters, mainly rural and urban poor, are demanding new elections, saying Abhisit lacks a popular mandate and is propped up by the military and a Bangkok elite that has disenfranchised them.
Abhisit said in a regular Sunday broadcast that he did not wish to stay for his full term, which lasts until 2012, but did not confirm whether an earlier offer to the red shirts of a November election was still on the table.
The protesters had rejected that offer and have said they will resume protests outside Bangkok next month.
The main anti-government Puea Thai party said it would bring a no-confidence motion against the government at a special session of parliament on Monday.
However, debate on the motion is not likely to take place for about two weeks, and the government is likely to easily defeat the motion.