Thailand will likely be the worst economic performer in Southeast Asia this year, with economists continuing to slash the country’s growth forecast amid surging Covid-19 infections, mounting political tensions and fading hopes for a tourism revival.
The Finance Ministry on Thursday cut its 2021 gross domestic product forecast to 1.3% growth, from the 2.3% it expected in April. With new Covid infections and deaths continually breaking records since the latest surge began in April, some economists are flagging the possibility of a technical recession in the second half of the year -- or even a second straight annual contraction, something the country hasn’t seen since the Asian Financial Crisis more than two decades ago.
According to the latest weighted average of 36 economists surveyed by Bloomberg, GDP should grow 1.8% this year. That’s particularly weak considering it’s a comparison to last year, when Thailand’s economy contracted 6.1%, the most in more than two decades.
“We see Thailand as a laggard in the region, penciling in the lowest GDP growth forecasts in Asean for both 2021 and 2022,” said Charnon Boonnuch, an economist at Nomura Holdings Inc. in Singapore. “Our forecast implies economic output will not return to pre-Covid levels before the third quarter of 2022, the slowest in Asean, partly reflecting the high dependence on foreign tourists.”
Bangkok and 12 other provinces, which account for more than half of the Thai economy, have been under lockdown and curfew since last week as the delta variant threatens to overwhelm the country’s public health system. The Bank of Thailand has said the outbreak could shave as much as two percentage points off this year’s GDP if current measures fail to quell it and the pandemic endures for the rest of the year.
The Finance Ministry’s new forecast, which carries a range of 0.8%-1.8%, assumes Thailand will receive 300,000 tourists this year, a fall of 96% from last year. The ministry also expects the current lockdown to last just one month, and sees the outbreak peaking in August.
“We expect that exports and government spending will help support the economy and should prevent GDP shrinkage this year,” said Kulaya Tantitemit, head of the ministry’s Fiscal Policy Office. The ministry raised this year’s export forecast to 16.6% growth, from 11% predicted in April, as global demand recovers.
The Thai baht is down 8.9% against the dollar so far this year, the worst performer among Asian currencies tracked by Bloomberg. The local currency was little changed at 32.875 to the dollar as of 12:54 p.m. local time. The ministry forecast the baht’s average level for the year at 31.48 per dollar.
What Bloomberg Economics Says...
Thailand’s worsening coronavirus outbreak looks set to push the economy into a double-dip recession in the third quarter, as well as a back-to-back yearly contraction for 2021. The high-frequency indicators tracked by Bloomberg Economics show no let up in the country’s weakening recovery momentum. We now see significant risks that the Thai economy will shrink further in 2021, compared with our previous forecast of a 2.3% expansion.
Thailand reported 17,669 new infections and 165 deaths Thursday, both single-day records. Total cases rose to 561,030, of which 95% have come since the latest wave began in April, official data show. The Health Ministry expects the current wave to begin easing by October.
Thailand has administered about 16 million vaccine doses, enough to cover about 11% of the population, according to the Bloomberg Covid-19 Vaccine Tracker. The central bank, which previously expected the country to achieve herd immunity in the first half of next year, now says that milestone won’t be reached until after 2022.
Thailand's weekly infections have reached an all-time high
“There’s now increasing chatter that the Thai economy will contract again this year,” said Maria Lapiz, managing director of Maybank Kim Eng Securities Thailand. “There’s no reason for optimism.”
The economic and health crises coincide with a rise in political unrest. The pro-democracy movement has returned to the streets in Bangkok after a six-month lull, with near-daily gatherings organized by different groups since June 24.
“We are in a severe crisis and our health system is on the brink of collapse,” said Burin Adulwattana, chief economist at Bangkok Bank Pcl. “The compensation program is inadequate. More and more people are losing faith with the government, which led some of them to take to the streets. This can undermine the government’s stability and further damage confidence.”
Prime Minister Prayuth Chan-Ocha aims to allow more foreign arrivals from October, but infections are already rising in Phuket, a resort island that began a quarantine-free program for vaccinated tourists in July. That could threaten the goal of rescuing the tourism industry, which contributed one-fifth of Thailand’s economy before the pandemic and employed about 20% of its workforce.
The government planned a 1 trillion baht ($30.4 billion) borrowing program last year to combat the pandemic and added another 500 billion baht this year amid the recent wave of infections. The Cabinet approved a further budget of as much as 30 billion baht in mid-July to compensate businesses and workers affected by the latest restrictions.
The economy’s two remaining engines -- government spending and exports -- also face uncertainties. June exports rose 43.8% from the same period last year, the fastest pace in 11 years, in line with recovering global demand. Yet this growth driver may also be at risk if vaccination remains slow, an industry group warned.
“It’s hard to hang on to the hope that the country will re-open in October,” Maybank’s Lapiz said, “or whether this re-opening -- if it does happen -- will make a big difference.”