Two months of Redshirt protests in Bangkok—and the aftermath of a bloody crackdown to end them—have taken an enormous toll on Thailand’s economy.

When anti-government protesters started gathering in Bangkok in mid-March, Thailand was making a roaring recovery from the effects of the global recession, posting 12 percent growth in the first quarter of 2010, according to official figures.

A firefighter douses Central world, Thailand's largest shopping complax, after it was torched by anti-government protesters on May 19.

The price of eight weeks of dislocation in the Thai capital, coupled with globally televised scenes of street fighting involving armed soldiers, will be difficult to assess in the short term, say economists. However, it is likely to shave at least 1 percent off earlier projected gross domestic product (GDP) growth for this year, they predict.

Even before the standoff reached its deadly climax, losses to Bangkok’s retail sector alone were estimated at well over US $1 billion in April. The forecasting center of the University of the Thai Chamber of Commerce estimated that figure would reach $4.3 billion by the end of May—but that was before the Redshirts went on the rampage, destroying dozens of buildings, including several landmark properties.

The country’s key tourism industry—which employs 1.8 million people and normally contributes about 6 percent of GDP—is already bracing for the loss of several million overseas visitors in 2010. The Tourism Authority of Thailand (TAT) is now revising down expectations from a previously anticipated 16 million visitors to 13 million.

The TAT said it is confident, however, that with a return to normality the industry can bounce back in the second half of this year with the help of a multimillion dollar promotion. That confidence isn’t shared everywhere, however.

The Thai property development group MBK announced it would delay hotel construction projects valued at more than $90 million for one year because of the likely reduction in tourism. MBK will also put on hold a new 200-room hotel in Koh Samui and a 50-room hotel in Phuket.

The unrest has also seriously dented the confidence of foreign firms investing in Thailand. According to the Joint Foreign Chambers of Commerce in Bangkok, some foreign investors have already begun shifting out of Thailand to other Southeast Asian countries.

The president of the Thai-Taiwan Business Association, Preston Chang, said Taiwanese businesses from shoe to furniture manufacturers are moving to Vietnam. Chang has already transferred some of his fruit-exporting business to Vietnam, which is seen as more stable with a tough but pragmatic Communist government.

“The reputational damage [to Thailand] of the crisis is considerable, and it is expected to take a long time before foreign travelers’ as well as investors’ confidence returns,” said IHS Global Insight, the US-based international economic and political forecasting agency.

Thailand’s image as a friendly and sound investment destination has been “severely tarnished,” said Nandor von der Luehe, the chairman of the Joint Foreign Chambers of Commerce in Bangkok, according to IHS in a Thailand assessment study.

“Serious challenges remain ahead as the government tries to stabilize the situation and to return the country back to normalcy,” said the study, made in the wake of the May 19 crackdown.

“While Thailand has seen numerous anti-government mass rallies taking place since the 2006 coup, this time is different. The government now faces its hardest task ever to heal the deepened divisions within Thai society and to restore international confidence in the country,” according to the study.

“An unpredictable security sphere, particularly in the northern heartlands of the Redshirt movement, adds to the predicament,” it added.

Although the most conspicuous targets of Redshirt rage were shopping centers catering to the very rich, more modest enterprises also suffered severe losses due to the disruption to their businesses or destruction of property.

Saowarod Dhinisiri, who normally runs a chain of  jewelry stalls in the battle zone, said her business plummeted 80 percent during the protests.

“Many of my regular customers became afraid to go out shopping,” she told The Irrawaddy. “Even when people are coming out on the streets they aren’t in the mood to shop.”

To help small businesses recover, the government announced plans to provide 50,000 baht ($1,500) grants to vendors directly affected by the protests. In an initial budget released a week after the protests ended, the government estimated that it would have to spend a total of 50 billion baht ($1.5 billion) to help struggling businesses get back on their feet.

But an even bigger challenge could be getting shoppers back in the mood to buy. Even before the escalation of violence on Bangkok’s streets in mid-May, consumer confidence had already dropped to its lowest level in eight months, according to figures from an April survey by the University of the Thai Chamber of Commerce. The confidence level has dropped each month this year.

The unrest has also delayed progress on projects by government agencies, resulting in a knock-on effect on the economy. Plans by the Stock Exchange of Thailand—one of the targets of arson attacks by Redshirt protesters—to become a private business instead of a state agency have been put on hold for another 12 months because reform legislation has been shelved.

Some Thai economists remain optimistic. The central Bank of Thailand recently revised upward its forecast for growth in 2010. The bank now says GDP could expand by between 4.3 percent and 5.8 percent. This prediction is based on strong export trade growth in the first quarter of 2010.

Other economists are more pessimistic.

“Our expectations [for Thailand] for this year, given the very difficult political situation, were for growth of about 3 percent,” said Rajiv Biswas, the Southeast Asia director of The Economist Intelligence Unit. “The risk is that the economic disruptions will become far greater.”

With Thailand’s economy the second largest in Southeast Asia, there are worries that economic damage could affect the whole region, he told CNBC in Singapore.

However, some foreign investors seem unperturbed by the dislocation.

Debt-ridden US vehicle giant General Motors said it is looking at new investment potential in Thailand, where construction of a new diesel engine factory and new pickup truck production lines are still going ahead outside Bangkok.

“It should not surprise too much that many [foreign] businesses continue to look at Thailand despite the current conflict and Redshirts,” said Simon Tay, chairman of the Singapore Institute of International Affairs think tank, in an assessment report.

“The country has been a longstanding favorite for many foreign investors, notably the Japanese. Markets will price in the risk of business there.”

Consumer confidence could also make a quick comeback if an end to the protests, however costly, spells a return to stability.

“Although we have taken huge losses, we look positively into the future,” Erwin Eberharter, the corporate executive chef of the Dusit International group, told The Irrawaddy.

The landmark Dusit Thani Hotel, located in the heart of the business district, was one of the worst affected businesses in the protest zone. It was forced to close down completely in the final days of the street confrontations after it came under gun attack while hosting a wedding.

“I have a feeling Bangkokians will want to go out and enjoy a good meal away from home very soon, something they have been deprived of all too long,” said Eberharter.