The reemergence of Covid-19 makes predicting 2021 economic growth difficult

Slow economic recovery is expected in 2021 with GDP growth at 2.6% (forecast range 0.0%-4.5%)

The year 2020 may be the most difficult year ever faced for many people worldwide, as the COVID-19 pandemic had a sudden and profound impact on global economic activity, especially the near-paralysis of international travel.

In Thailand, lockdown measures were imposed during April-early May 2020, which caused a sharp economic contraction in the second quarter. After a gradual relaxation of lockdown measures together with the launch of multiple government stimulus measures, the Thai economy showed a significant rebound in the third quarter and early in the fourth quarter of 2020 amid low numbers of new local cases since May 2020.

However, the new outbreak of late December 2020 has reminded us that the world has yet to return to normal, and the way forward is full of uncertainties.

That said, the COVID-19 pandemic will remain as the key underlying theme of the global and Thai economy in 2021. Despite significant progress in coronavirus vaccine development, its supply, distribution, side effects and duration of immunity will remain a concern.

This note, plus the resurgence of COVID-19 in Thailand, will delay reopening of the country to welcome inbound tourists. KResearch forecasts that international tourist arrivals will be in the range of 4.5-7.0 million (compared to around 6.7 million expected for 2020); the lower end of the range reflects our view towards the downside risks.

KResearch holds the view that the Thai economy in 2021 is expected to see growth of 2.6 percent – a rebound bolstered by government spending, in both consumption and investment. However, the forecasted range is between 0.0-4.5 percent, with the lower-end limit representing the potential impact of a resurgent COVID-19 that could lead to a partial shutdown of the country, or delay in access to the coronavirus vaccine or its development.

Meanwhile, political risks remain, as well as the Baht appreciation trend that could impact export competitiveness in the coming year.

Regarding the Baht trend, despite the recent Baht weakness during the domestic COVID-19 outbreak in late 2020, we still believe that the Baht will remain volatile with an overall strengthening bias against the greenback throughout 2021.

The Baht’s supportive factors include the current account surplus and the fact that Thailand has been added to the US Treasury’s ‘Monitoring List’ for suspected currency manipulation and unfair policies to gain an advantage in international trade. Meanwhile, the US Dollar is set to weaken steadily due to the US’s budget and current account deficits and the Fed’s ultra-easing monetary policy. In this regard, the Baht is projected to touch 29.0-29.25 to US Dollar as of the end of 2021.

Amid uncertainties from various factors, the government’s economic stimulus measures are still necessary to maintain Thailand’s economic stability. KResearch assesses that the government’s remaining budget of around 500 billion baht left from an Executive Decree empowering it to borrow 1 trillion baht, and the fiscal 2021 budget, will likely be adequate to maintain the economy with no need to create more debt, in the case that the COVID-19 pandemic in the country does not worsen to the extent that another lockdown is required.

Regarding monetary policy, KResearch is of the view that the Bank of Thailand (BOT) may assess the economic situation in phases. If there are signs of downside risks to the economic recovery, the Monetary Policy Committee (MPC) may have room to cut its interest rate by another 0.25 percent or reduce contributions to the Financial Institutions Development Fund (FIDF) so that commercial banks can cut their lending interest rates. Moreover, such actions should be undertaken concurrently with other policies, as well. Effective actions may include revision of the BOT’s soft loan program and loan guarantee campaigns by the Thai Credit Guarantee Corporation (TCG).

Thailand’s Economic Projection for 2021

Resurgence of COVID-19 could cost as much as 45 billion baht within one month

In the wake of the new wave of COVID-19 that has found infection cases in many provinces, the government has imposed COVID-control zoning wherein there are four zones of pandemic control measures based on the number and degree of change in new cases. Preliminarily, unless the situation worsens or a nationwide lockdown is imposed once more as seen in the second quarter of 2020, we at KResearch assess that losses to Thailand’s economic and industrial sectors may amount to roughly 45 billion baht within one month. Details are as follows: 

  • Losses stemming from delayed/cancelled domestic trips will likely reach around 17 billion baht. Affected provinces are those in the western and central regions, Bangkok and those located along the Thailand-Myanmar border.
  • Losses due to deferred/cancelled activities during the New Year festival, especially among Bangkok residents, are projected to be at least 15 billion baht. The main casualties would be the event and retail businesses.
  • Losses to fisheries and seafood products may reach approximately 13 billion baht as consumers may not purchase such products over the short term. In addition, such shipments are likely to be affected going forward because trade partners may require Thai exporters to tighten inspection measures and other processes. All parties concerned should expedite measures to bolster confidence.

In addition, there will be other losses that cannot be readily assessed such as the income of vendors in markets, as people are likely to avoid visiting places where cases are found. Going forward, industries such as fisheries and seafood that are heavily reliant upon foreign laborers, especially those from our neighboring countries, could find themselves beset by labor shortages and rising wage costs.

All in all, 2021 will certainly be another challenging years for both individuals and businesses. For businesses, maintaining liquidity and efficient cost management remain among top priority in order to handle any ongoing uncertainty for at least 3-6 months. Lastly, do not forget to keep a high guard against the virus infection that seems to be a new normal risk for us next year.


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