Thailand risks first double-dip recession since 1998 crisis

REUTERS

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.

Gross domestic product (GDP) is expected to grow 1.8% this year, according to the latest weighted average of 36 economists surveyed by Bloomberg. That’s particularly weak considering it’s a comparison to last year, when the Thai economy contracted 6.1%, the most in more than two decades.

In the latest sign of pessimism, the Ministry of Finance on Thursday cut its 2021 GDP growth forecast to 1.3% from 2.3% 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 suffered since the Asian Financial Crisis more than two decades ago.

“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 Thailand’s 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 GDP this year if current measures fail to quell it and the pandemic endures for the rest of the year.

The Thai baht has weakened 8.9% year to date, the worst performer among Asian currencies tracked by Bloomberg. The local currency was little changed at 32.871 to the dollar as of 11:25 a.m. local time, after the finance ministry released its economic outlooks, including forecasting the baht to average 31.48 per dollar this year

Thailand reported 17,669 new infections and 165 deaths on Thursday, both are highest single-day increase since the pandemic began. The nation’s cumulative cases jumped to 561,030, of which 95% have come since the latest wave began in April, official data show. The Health Ministry says the current wave should 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 herd immunity to be achieved in the first half of next year, now says that milestone won’t be reached until after 2022.

WORST WAVE
“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.” — Bloomberg

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