Recession, dead ahead! Contraction looms for Thailand and Asia

No one could have predicted in February when Thailand’s total number of coronavirus cases was around 40 that the country would be headed towards a recession.

But with the number of confirmed cases skyrocketing to over 2,000 cases and multiple fatalities, a recession is all but certain with multiple institutions predicting a dire economic outlook.

Institutions Prediction
World Bank -5.0%
Asian Development Bank -4.8%
Bank of Thailand -5.3%
University of the Thai Chamber of Commerce -0.5%
Standard Chartered Bank (Thai) -5.0%
Tisco’s Economic Strategy Unit -6.9%
SCB’s Economic Intelligence Center -5.6%
Kiatnakin’s KKP Research -6.8%

Perhaps the most dire of predictions came from the Bank of Thailand which suggested that the country’s economy could contract by 5.3 per cent this year.

The national bank said that the impact from the outbreak is taking a heavy toll on Thailand’s tourism and export sector. The latter, which accounts for 70 per cent of the GDP worth 16.9 trillion baht, could contract by 8.8 per cent.

Tourism accounts for 13-16 per cent of the GDP and is perhaps the hardest hit sector with shutdowns, travel bans and global disruptions adversely affecting the sector.

Tourist numbers have already dropped by more than 40 per cent in February and that number could easily increase to 50-60 per cent in March and April.

The World Bank echoed the BOT’s sentiment and said last week that in the worst-case scenario, the Thai economy could contract by 5 per cent in 2020.

Private think-tanks

Apart from government and international institutions, think-tanks and banks are also predicting a recession.

Tim Leelahaphan, a Thailand economist at Standard Chartered Bank, told Thai Enquirer that his analysts are now predicting a contraction of at least 5 per cent for Thailand’s GDP in 2020.

When asked if it’s possible to see a double-digit recession this year, Tim said, “a contraction of more than 5 per cent is possible because the outbreak is still ongoing.”

Tisco’s Economic Strategy Unit said the economy could contract by as much as 6.9 per cent. They expect that 70 per cent of international arrivals will be gone in 2020, from 39.8 million down to 12 million people.

They predict oil prices will average around $35 per barrel in 2020 from its previous prediction of US$55 per barrel. They also said that the drought could take away 0.7 per cent of the GDP as dry conditions could last until June.

SCB’s Economic Intelligence Center (EIC) is expecting a contraction of 5.6 per cent for 2020 as the global economic activity is experiencing a “sudden stop” which could lead to an export contraction of 12.9 per cent.

The EIC said all of the government’s economic relief packages that were launched in March and the possible emergency loan worth 200 billion baht was taken into account in their prediction.

From all the negatives, Tim said there now three positive factors that he could see.

First, the government is “on the right track” in terms of economic packages which are now injecting around 517 billion baht into the economy via the previously launched packages. The new package, which was proposed on Friday, could add another 200 billion baht in the economy as well.

Second, the BOT and Ministry of Finance are working more closely with each other, something that should have happened a long time ago.

Third, Thailand still has a lot of fiscal space.

The policy interest rate is already at a historic low of 0.75 per cent while the public debt-to-GDP ratio was still low at 41.27 per cent as of January. This was well below the ceiling of 60 per cent that was set by the government’s fiscal sustainability framework.

It also means the government still has room of about 19 per cent of a GDP, currently worth around 16.9 trillion baht, that the government could work with to help the economy.

Asian outlook

The Asian Development Bank (ADB) said on Friday that the cost of the coronavirus pandemic could knock $2-$4.1 trillion, or 2.3-4.8 per cent of the global GDP.

The lender cut its 2020 growth forecast for Asia to 2.2 per cent from their 5.5 per cent prediction last September. Asia’s economic growth could also face its slowest pace of growth in 22 years since the crisis year of 1998.

After growing 4.4 per cent in 2019, Southeast Asia is predicted to expand by 1 per cent in 2020.

Nine Asia-Pacific economies that heavily rely on tourism and commodity trade are the worst hit of all, as travel restriction is keeping people from flying and lockdowns are keeping people at home. These nine counties include Fiji, Thailand, and Palau, who are facing a recession of 4.9, 4.8 and 4.5 per cent respectively in 2020, according to the ADB’s predictions. 

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