Kasikorn predicts GDP in Q2 to decline by as much as 18.5 per cent as economic slowdown takes grip in Thailand

The Thai economy saw further deterioration in May as the fall in tourism revenue coupled with the continued decline in exports, domestic consumption and private investments are all likely to lead to the economy contracting by as much as 18.5 per cent during the second quarter of 2020.

“As we have adjusted our GDP bottom-up approach in regards to the BOT’s forecast of 8mn foreign tourist arrivals, the GDP figure, according to our bottom-up approach, will show an 18.5 per cent contraction in 2Q20,” Passakorn Linmaneechote, head of research at Kasikorn Securities said in a note to clients today.

Passakorn’s assessment of the economic situation came after the Bank of Thailand (BOT) released the month-end data for the month of May 2020 on Tuesday.

In the release of the data, the BOT reported 

  • Private consumption, a key component of the gross domestic product (GDP), saw a 12.5 per cent year-on-year contraction. This was a slight improvement from the month of April that saw a decline of 14.4 per cent.
  • The key drags on spending in the private segment were broad-based as non-durables fell 7.5 per cent YoY, semi durables contracted 7.2 per cent, durables collapsed 32 per cent and services crashed 29 per cent, Kasikorn said.
  • Private investment index: another key component to the economy as it indicates the level of investments being undertaken by the private sector, saw a 12.5 per cent decline year-on-year and this decline was worse than the 10 per cent year-on-year decline seen in April data released by the BOT.
  • Key drags on investment were imports of capital goods (-28 per cent), domestic machinery sales (-11.8 per cent), the number of newly registered motor vehicles for investment (-34.7 per cent) and construction material sales (-2.4 per cent), Passakorn said.
  • Exports, which accounts for about 60 per cent of the GDP, saw 23.6 per cent contraction and if oil and gold were subtracted from the export figures then the contraction was even worse with 29 per cent decline year-on-year, which is a historic low for exports.
  • The contraction was broad-based, led by both electronics (-17 per cent) and electrical appliances (-28 per cent), petroleum and petrochemical products (-31.8 per cent), automotive (-57 per cent) and jewelry (-67.9 per cent). 
  • Meanwhile, imports, which are usually an indication of what is to come as a lot of the imports are used as raw materials for export, saw a 34.2 per cent decline.
  • The key drags, again, were broad-based, comprising consumer products (-22.2 per cent), raw materials/intermediate (-37.3 per cent) and capital goods (-27.5 per cent)
  • Tourism: the closure of the airport during the month of May saw zero tourist arrival and therefore tourism sector that accounts for about 12-15 per cent of the GDP saw no income whatsoever. 

All this led to Thailand registering a current account surplus of US$0.064 billion in the month of May.

The outlook for the month of June should be a little better as the lockdown was eased around the middle of June and could help bring some life back to the economy. This data will be released by the BOT on July 31.

“This is in line with both the current five months 2020 data and comments made at the BOT press conference about its own 2Q20 Thailand GDP outlook, in which the central banks see a 10-20 per cent contraction,” Passakorn said in his note to justify the 18.5 per cent contraction in the GDP during the second quarter of the year.

For the full year, the BOT said it expects the GDP to dip by as much as 8.1 per cent, a sharper than expected contraction than the -5.3 per cent it projected in March in 2020. This year’s economic contraction could be worse than the 7.6 per cent seen in 1997 during the Tom Yam Krung crisis.

Don Nakornthap, Senior Director of Macroeconomic Department of Bank of Thailand, revealed that the economic situation in May 2020 has decreased more.

Although the lock-down measure of many countries including Thailand has begun to ease their austerity, foreign tourists are still unable to enter the country due to international travel restrictions. 

The downfall has caused a severe impact on businesses and workers in the tourism industry and other related industries, with negative exports value at 23.6 per cent (29 per cent excluding gold).

Bank of Thailand added that the Thai economy in the second quarter was the lowest point and things should start to show signs of recovery in the following quarters.

However, it is still necessary to beware of the second wave of the outbreak in big countries, especially in the United States.

Kasikron Securities is not alone in its prediction for lower economic growth, the Joint standing committee on Commerce, Industry and Banking (JSCCIB), a body comprising of the various industry bodies, came out to say that it was expecting the GDP for the year to shrink by as much as 8 per cent and that during the second quarter, it could be in high double-digit decline.

%YOY201920202020
(May 20)(July 20)
GDP2-5.0 to -3.0%-8.0 to -5.0%
Export-2.7-10.0 to -5.0%-10.0 to -7.0%
Inflation0.7-1.5 to 0.0%-1.5 to -1.0%

The sharp decline in the GDP is expected to put pressure on the higher unemployment and rise in non-performing loans in the country.

Widespread unemployment is expected to reach higher than 20 per cent of the workforce in 2020 as the economy seems to worsen from the COVID-19 outbreak.

The National Economic and Social Development Council (NESDC) predicts that the effects of COVID-19 outbreak will cause more than 8.4 million laborers to be at risk of termination apparently in the second quarter of 2020.

The report from NESDC estimates that the groups at risk of facing unemployment include:

  1. 2.5 million workers in the tourism sector (not including wholesale and retail trade) will be affected. Currently, about 3.9 million people are employed in this sector.
  2. 1.5 million workers in the industrial sector will be affected. Right now, approximately 5.9 million people are employed in this sector.
  3. 4.4 million workers in other services such as education institutions or places involving large groups of people such as sports fields and shopping malls will be impacted. At the moment, about 10.3 million people are employed in this sector 
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