(Bloomberg) --
The sudden resignation of Thailand’s finance minister for health reasons, less than a month into his term, creates more uncertainty for an economy already bracing for the deepest blow in Asia from the coronavirus pandemic.
Prime Minister Prayuth Chan-Ocha said Wednesday that Predee Daochai’s departure won’t affect economic policy, but the move “raises uncertainty about government spending and fiscal policy. This is worrisome,” said Kobsidthi Silpachai, head of capital market research at Kasikornbank Pcl in Bangkok. Thailand needs to rely on government spending “more than ever during this time to drive the economy while other engines are unreliable.”
The Thai economy already faced considerable risks as it begins recovering from April’s lockdown. The Bank of Thailand expects gross domestic product to shrink 8.1% this year --the Finance Ministry is even more downbeat, predicting an 8.5% contraction -- before bouncing back to grow 5% in 2021.
Here are some of the obstacles Thailand’s recovery must overcome:
Political Risk
In recent weeks, demonstrations on university campuses demanding revisions to the country’s constitution have grown and spread to high schools, with one mid-August gathering in Bangkok bringing out more than 10,000 protesters. The next major rally is slated for Sept. 19.
“Political noise is rising, and we are starting to see a re-emergence of political risk,” said Tim Leelahaphan, an economist at Standard Chartered Plc in Bangkok. “This is weighing on consumer and business sentiment, as well as domestic economic activity.”
No Tourists
Although Thailand has been one of the world’s most successful countries in curbing Covid-19 -- it’s not had a locally-transmitted case since late May -- tourism and related industries, which account for nearly 20% of GDP, have been severely hit, with no foreigners arriving for the past four months.
The prime minister is seeking an appropriate way to reopen the borders, but fear of a second wave of infections has delayed such plans.
The Bank of Thailand sees the return of tourists as key to reviving the economy. The central bank still formally forecasts 8 million tourist arrivals this year -- compared to almost 40 million in 2019 -- but that figure is likely to be revised down. Finance Ministry figures, which predict 6.8 million arrivals this year, assume another 100,000 foreigners will arrive in the final four months of the year.
Weak Demand
Exports, which were equal to more than 40% of the economy last year, have plunged as the pandemic wreaks havoc on global demand. Gains in the baht, which rose more than 6% in the second quarter, add to exporters’ woes. Rising demand abroad for some Thai-made food and electronics products during the pandemic hasn’t been enough to offset falling demand for cars and other industrial items.
The Finance Ministry predicts exports will contract 11% for the full year.
Limited Stimulus
Parliament approved a 1.9 trillion baht ($61.4 billion) stimulus package in late May to counter the coronavirus recession. On Wednesday, measures worth 68.5 billion baht were passed to support jobs for new graduates and boost domestic consumption.
The government may find it difficult to spend more, however, as the public debt-to-GDP ratio is approaching the 60% limit following a plan to borrow as much as 1 trillion baht to fund the stimulus measures.
The Bank of Thailand, for its part, may need to consider unconventional tools after three reductions so far this year brought the benchmark interest rate to a record low of 0.5%, leaving little room for further easing.
Though officials and analysts are talking up a rebound, “it may be just the hope for recovery, not the fact yet,” Kasikornbank’s Kobsidthi said. “We are getting better from the lockdown, but everything is still far from normal.”
©2020 Bloomberg L.P.
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