(Reuters) – Thailand’s export-driven economy is likely to weather the political storm this year, with growth forecast to approach 5 percent as global demand recovers, but its five-year political crisis remains a threat to stability.

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In the latest phase, protesters supporting ousted premier Thaksin Shinawatra have rallied in Bangkok for almost three weeks, pushing their demand for new elections.

This raises questions about risks to the $264 billion economy, Southeast Asia’s second-largest, if the protest movement drags on, or the government falls, or violence breaks out.

IS THE POLITICAL TURBULENCE HURTING TOURISM?

The Tourism Authority of Thailand expects 15.5 million tourist arrivals this year, up from 14.1 million last year. The “Land of Smiles” already welcomed 3.21 million foreign visitors in the first two months.

The agency aims for a 10 percent rise in revenue to 580 billion baht ($18 billion) this year for the industry, which brings in about 6 percent of gross domestic product and directly employs 1.8 million people.

Some operators complain that the latest protests have scared off thousands of tourists from China, Hong Kong and South Korea. The Federation of Thai Tourism Associations says the industry has already lost more than 10 billion baht ($309 million) and more damage is expected as the long Songkran holiday approaches in mid-April.

But others say business is doing just fine as big-spending visitors from other countries are shrugging off the problem. AllTheBestTravel says Japanese clients, who are usually sensitive to political developments, are still coming, viewing the protests as no problem unless they lead to the closure of airports.

Tourism in Thailand — home to some of Asia’s finest beaches and resorts — has proved fairly resilient to previous unrest.

The number of arrivals fell only 3 percent in 2009, when the “red shirt” protests sparked the country’s worst street violence in 17 years in Bangkok and Pattaya last April. That followed an airport blockade in late 2008 that stranded more than 200,000 tourists and disrupted trade. Arrivals rose 0.8 percent in 2008.

Thailand has seen 24 coups and attempted coups since the end of absolute monarchy in 1932, and scores of other political crises, but foreigners are rarely affected.

IS THE POLITICAL CRISIS HURTING INVESTMENT?

Despite the ongoing protests, portfolio investors are still putting money into Thailand, driving the stock market to a 22-month peak and the baht to 20-month highs. Foreigners have bought a net $1.6 billion of Thai shares since February 22.

One attraction is that Thai stocks look cheap. Listed firms trade at just 11.9 times estimated 2010 earnings, making Bangkok the second cheapest market in Asia after Pakistan. Its dividend yields are also among the highest.

The rise in the baht may be reinforced by a central bank rate increase in coming months and that would add to the attraction of Thai assets.

Risks to stability remain over the medium to long term as the crisis is likely to continue on and remain a drag on confidence.

Supporters of ex-premier Thaksin, ousted in a 2006 coup, are unlikely to force an immediate election through protests. But his allies are likely to win polls that must be called by 2011, and royalist elites and the military could seek to overturn that result, possibly with another coup.

That would deter long-term foreign direct investment.

The Board of Investment says investors have not relocates but their investment pledges this year could fall 15 percent to 300 billion baht. Japanese firms, the country’s biggest investors, have expressed concern and might look elsewhere if the crisis continues.

ARE THE PROTETS HURTING BUSINESSES IN BANGKOK?

Businesses are largely operating as usual and many around the protest site are thriving, especially convenience stores, hotels, restaurants and stalls selling food and drink.

CP All, Thailand’s largest convenience store operator, expects profit growth of 15-20 percent this year.

Just a short ride from the protest site, Khao San Road, a magnet for low-budget tourists, seems unaffected, with plenty of Westerners in the bars and Internet cafes.

But some businesses around the site such as petrol stations, beauty salons and non-food shops are suffering, especially those that have opted to close their doors at the weekend.

Thais are worried about the political situation, reflected in a drop in consumer confidence in February after three months of rises. Yet they have not stopped spending. Domestic auto sales increased in February for the sixth straight month, up 57.7 percent from a year before.

WHAT’S THE EFFECT ON GDP FORECASTS?

On March 29 the Finance Ministry raised its economic growth forecast to 4.5 percent from 3.5 percent due to better exports and consumption. But it warned the political turmoil could cut growth by as much as 1.8 points if it continued until the fourth quarter and led to a dissolution of parliament.

The University of the Thai Chamber of Commerce predicts the problem could cost the economy as much as 100 billion baht, GDP growth by 0.5 point to 3.0-3.5 percent this year, if the turmoil drags on for three months.

The central bank forecasts economic growth of as much as 5.3 percent this year, the highest since 2004, when the economy expanded 6.3 percent. It said last week it might raise its forecast if the political situation did not turn violent. It is due to release new forecasts on April 29.

Private economists predict growth of 4-5 percent this year, saying the protests, which have been largely peaceful, should not cause serious damage to the economy. Action Economics sees growth of 5.5 percent due to the rebound in global demand. The economy shank 2.3 percent in 2009, due mainly to the global crisis.

($1=32.34 Baht)

(Additional reporting by Boontiwa Wichakul and Papitchaya Boonngok; Editing by Alan Raybould and Jason Szep)