Weakened Thai economy faces uphill fight amid surge in new Covid-19 cases

BANKKOK (BLOOMBERG) – 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 per cent from a year earlier, the National Economic and Social Development Council said on Monday (May 17), compared with a median estimate of -3.3 per cent in a Bloomberg survey and improving from the prior quarter’s 4.2 per cent contraction. GDP rose a seasonally adjusted 0.2 per cent quarter-on-quarter, beating the survey’s -1.0 per cent.

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 on Monday, has almost quadrupled the country’s total caseload since the start of April, sending consumer confidence to a 22-year low.

“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 roll-out, 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 per cent-2.5 per cent, from February’s 2.5 per cent-3.5 per cent. That assumes the latest outbreak is reined in by June, Danucha said.

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

“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, ” said Tamara Mast Henderson, Asean economist for Bloomberg Economics.

The Finance Ministry last month cut its own 2021 GDP growth forecast to 2.3 per cent 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 per cent-2 per cent 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 programme. 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 US$7.2 billion (S$9.6 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.

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