Thai Economic Slide Slows as Stimulus Counters Virus Impact

(Bloomberg) -- Thailand’s economy improved in the third quarter after the government implemented a series of stimulus measures and eased restrictions on movement as it brought the country’s Covid-19 outbreak largely under control.

Gross domestic product shrank 6.4% from a year ago, the National Economic and Social Development Council said Monday, recovering from the prior quarter’s revised 12.1% contraction at the peak of the outbreak. The figure was better than the median estimate of 8.8% contraction in a Bloomberg survey of 19 economists. The council also raised its full-year forecast to a 6% contraction, from an earlier estimate of a 7.3% to 7.8% drop.

All the economic indicators, barring tourism, improved in the third quarter, and government spending will remain the main growth driver for next year, Danucha Pichayanan, the council’s secretary general, told a news briefing. A strengthening currency and high unemployment remain risks for growth next year, he said. Political protests also pose a challenge to the fragile recovery.

With tourism and trade hit hard by the outbreak, Prime Minister Prayuth Chan-Ocha has spent hundreds of billions of baht in cash handouts and stimulus measures from a 1.9 trillion-baht ($62.9 billion) economic package to support local demand.

The baht extended gains against the dollar to as much as 0.2% after the data, then reversed course to trade little changed after Finance Minister Arkhom Termpittayapaisith said he’ll speak with the Bank of Thailand about measures to tackle the currency rally. The benchmark SET stock index jumped as much as 1.4% to near a four-month high, while the yield on 10-year government bonds was little changed at 1.33%.

What Bloomberg Economics Says...

“Pre-pandemic levels of demand remain a long way out, with a return to positive year-on-year growth unlikely to occur until 2Q 2021. Tourism, which accounts for about one-fifth of the economy, probably won’t get back to normal before 2022.”

-- Tamara Mast Henderson, Asean economist

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The council’s full-year forecast of a 6% contraction compares with the 7.7% fall seen by the finance ministry and the 7.8% contraction the central bank expects. The council forecast 3.5%-4.5% growth for next year.

GDP in the third quarter rose a seasonally adjusted 6.5% compared with the previous three months, the council said Monday, better than the median estimate of a 3.9% gain in a Bloomberg survey of economists. Second-quarter GDP was revised to a contraction of 9.9%, from -9.7% earlier.

Currency Complications

The government wants the central bank to temper a rally in the baht, which has surged in the past month as foreign inflows resumed into local stocks and bonds. The rally is threatening efforts to boost exports to offset the slump in tourism revenue.

Bank of Thailand Governor Sethaput Suthiwart-Narueput said last week the country’s high foreign-exchange reserves and low foreign debt will help it weather the economic crisis, which will take time and targeted remedies to resolve. Around 3 million workers have been affected by the pandemic, with as many as 800,000 people rendered jobless.

Measures to accelerate the recovery should focus on managing Covid-19 infection risks, helping the tourism sector, disbursing public spending, promoting private investment, preparing for a drought, and de-escalating the protest movement, Danucha said.

“The protests do not bode well for an already contracting economy, in our view, particularly given the unclear fiscal policy outlook,” Tim Leelahaphan, an economist at Standard Chartered Bank Plc in Bangkok, wrote in a research note. “We see political tensions mounting and lasting into 2021, with no clear solution in sight at this juncture.”

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