Economy to contract by 8.5 per cent in second half with new tourist arrivals not helping

The Thai economy has “slightly” improved in August, the Bank of Thailand (BOT) said on Wednesday.

The improvement was based on “lighter contractions” in exports, manufacturing production, and private investment.

The only indicator it has expanded was public spending; meanwhile, private consumption contracted further after the extended holiday ended. It has been five consecutive months without foreign tourist arrivals.

The central bank now expects an economic contraction for every quarter until a possible expansion by the first quarter of 2021.   

“The Thai economy will continue to contract in the third and fourth quarter of 2020 but the contraction will be less than the contraction in the second quarter,” said Don Nakornthab, BOT’s Senior Director of its Economic and Policy Department. 

He added that the Thai economy could contract by 8.5 per cent during the second half of 2020. 

Don said that apart from the contraction in exports and tourism, the absence of a finance minister could lead to a delay in many ongoing government projects which could, in turn, lead to a slower economic recovery.

Last week, the regulator slightly raised its GDP projection for 2020 from a contraction of 8.1 per cent to a recession of 7.8 per cent instead. 

The projection was based on forecasts that exports will contract by 21.2 per cent and that the country will only welcome 6.7 million visitors in 2020, compared to the nearly 40 million figure in 2019.

BOT’s data also showed that the country has already registered 6.7 million visitors in the first half of 2020. 

Don said the government’s measures to allow some foreign tourists to reenter Thailand via the Special Tourist Visa, for instance, will not affect the economy this year as the quota is set to welcome only 1,200 visitors per month compared to the usual of 3 million per month in 2019.

Exports contracted by 8.2 per cent in August compared to a contraction of 11.9 per cent in July. In the same period of time, the private consumption index declined by -1.1 per cent year-on-year compared to a contraction of -0.1 per cent. 

Excluding gold export, exports of merchandise recorded a historical high and actually contracted by 13.6 per cent in August; however, that is still less than a contraction of 14.3 per cent in July.

The smaller contraction was based on improvements in exports, petroleum-related products, automotive parts and electrical appliances, consistent with the gradual recovery of demand in trading partner countries, the central bank said. 

They also noted that the exports of agricultural products contracted deeper, especially fruits to China, as demand was accelerated when Beijing first started to ease up on its lockdown measures.

For manufacturing and investment, the manufacturing production index declined by -9.3 per cent year-on-year in August compared to the more than 10 per cent contraction in July. 

The private investment index also contracted by -4.6 per cent when compared to a contraction of 7.5 per cent over the same period of time.

With private investments down, imports have contracted by 10.9 per cent in August but it was less than the contraction of 19.1 per cent in July.  

With contraction in exports and private investment and while the tourism sector is still dead, the unemployment rate has also been increasing from 1 per cent during the first quarter of 2020 to 2 per cent in the second quarter. It is now at 1.9 per cent in August. 

The private sector expects 8-10 million people to be out of a job because of the coronavirus pandemic in 2020.

For public spending, the BOT said the greater expansion in August was attributed to the expansion in capital expenditures from the central government. However, current expenditures have slightly contracted while state enterprises’ capital expenditures also declined last month. 

The World Bank said on Tuesday that they expect the Thai economy to contract by 8.3 per cent in 2020 which is along the same line of BOT’s improved projection of a 7.8 per cent recession.

The Office of the National Economic and Social Development Council also predicted a 7.5 per cent contraction while the Asian Development Bank Thailand expects the GDP to contract by 8 per cent in 2020, the worst hit among Asian countries. 

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