Weakened Thai Economy Faces Uphill Fight Amid Surge of New Cases

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Thailand’s economic contraction continued into the start of year, setting the stage for a further slump as the country now faces its worst wave of Covid-19 cases.

Gross domestic product in the first quarter shrank 2.6% from a year earlier, the National Economic and Social Development Council said Monday, compared with a median estimate of -3.3% in a Bloomberg survey and improving from the prior quarter’s 4.2% contraction. GDP rose a seasonally adjusted 0.2% quarter-on-quarter, beating the survey’s -1.0%.

The government faces a fresh dilemma between containing a new outbreak and sustaining domestic demand, which had started to recover in March before slumping again last month. The fresh wave, with new cases hitting a record Monday, has almost quadrupled the country’s total caseload since the start of April, sending consumer confidence to a 22-year low.

Weakened Thai Economy Faces Uphill Fight Amid Surge of New Cases

“The government’s spending will remain the key driver of the economy,” Danucha Pichayanan, the council’s secretary general, told reporters in Bangkok. Risk factors include uncertainty about the vaccine rollout, delays in tourism recovery and the fragile financial position of household and businesses.

The council, which is one of three Thai agencies that produce economic forecasts, also lowered its growth outlook for the year to 1.5%-2.5%, from February’s 2.5%-3.5%. That assumes the latest outbreak is reined in by June, Danucha said.

Thailand’s key SET Index was down 0.7% as of 10:07 a.m. in Bangkok, set for its lowest close since March 4. The baht fell 0.2% against the dollar.

What Bloomberg Economics Says...

“Thailand’s growth beat estimates in the first quarter, managing to avoid a quarterly contraction. That’s admirable resilience in the face of the country’s worst outbreak of the pandemic, but is unlikely to persist in our view. More infectious variants of Covid-19 may require social distancing to remain tighter and for longer, capping recovery prospects.”

-- Tamara Mast Henderson, Asean economist

Click here to read the full note

The Finance Ministry last month cut its own 2021 GDP growth forecast to 2.3% because of the third wave of cases. The Bank of Thailand, which earlier this month held its key interest rate at an all-time low, warned GDP may grow only 1%-2% this year, slower than previously expected, as the pace of vaccination impacts tourist arrivals.

“There’s a lot of concern about the new Covid-19 wave because our forecast of strong economic recovery in the second half is entirely out of sight,” Kattiya Indaravijaya, chief executive officer of Kasikornbank Pcl, said in an interview ahead of the data release. “Tourism is now expected to return to its normal level in two to three years. Several customers are experiencing a very bad situation with the new curbs and the slump in demand. The outbreak really makes people cut their spending.”

The council asked the Bank of Thailand and commercial banks to increase lending to smaller businesses and speed up implementation of an asset-warehouse program. The council also said the government should take measures to maintain employment and create new jobs.

Prime Minister Prayuth Chan-Ocha earlier this month gave in-principle approval for a $7.2 billion assistance package that included short-term financial relief for those affected by the virus, as well as measures to stimulate consumption once infections abate. The central bank announced new support measures to help small borrowers last Friday.

Other points from the briefing:

  • The council expects Thai exports to grow 10.3% this year and imports to grow 13.1%
  • The forecast for tourist arrivals this year was cut to 500,000, with tourist receipts now expected at 170 billion baht ($5.4 billion)
  • Current-account surplus seen at $3.6 billion
  • Estimate of private-consumption growth cut to 1.6%
  • Authorities must be sure to disburse at least 92.5% of the budget for the 2021 fiscal year, and disburse at least 80% of a 1 trillion baht loan package approved in April 2020, to drive growth

©2021 Bloomberg L.P.

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