2021 could see further contraction, research house warns

Thailand is heading for a second year of economic contraction, a research house said on Tuesday, amid expectations that the economic impact of the Covid-19 pandemic could last longer than the 1997-98 Asian financial crisis.

Kasikorn Research Center downgraded its projection of gross domestic product (GDP) for 2021 to a 0.5-per-cent contraction, down from 1-per-cent growth predicted in July.

This marks the first forecast of a second back-to-back year of GDP contraction, after the economy shrank by 6.1 per cent in 2020. Most research units are still estimating slim growth figures for 2021.

According to the research, the latest pandemic wave with more than 20,000 new cases each day has not yet peaked. Analysts at Kasikorn anticipated the apex in September.

“The strict control measures will likely endure longer,” the analyst warned, after the government on Monday extended restrictions until the end of August.

Even if some business restrictions are relaxed, the low vaccination rate will continue to put a strain on consumer confidence, they noted, citing possible disruption to the export sector due to factory clusters.

On Monday, the National Economic and Social Development Council (NESDC) reported that the second-quarter GDP jumped by 7.5 per cent from low base levels in 2020. The first quarter contracted 2.6 per cent from Q1 2020, when the pandemic was still in its very early days.  

The council, unlike Kasikorn, held a less pessimistic view by cutting its economic projection to a range of 0.7-1.2 per cent growth from 1.5-2.5 per cent made in May.

Meanwhile, the baht slumped by 0.5 percent versus the USD to trade around a three-year low. The currency stood as one of the worst performers among major currencies in Asia.

More pain to come

Following the government’s decision to extend stringent restrictions until at least the end of August, Sanan Angubolkul, chairman of the Thai Chamber of Commerce, told local media INN on Tuesday that the overall damage to the economy could surpass 1 trillion baht.

Sanan even forecast more losses if the state fails to get the pandemic under control by September, saying relief packages to affected people are insufficient.

Besides the economic crisis, political instability has emerged as a challenge in the form of numerous anti-government rallies nationwide calling the prime minister to resign.

“While the government may encounter certain political difficulties, it should prioritize public health and economic challenges,” Sanan said.

Extra borrowing needed

Thailand’s central bank on Monday urged the government to borrow an additional 1 trillion baht to tackle Covid-19, even at the risk of exceeding the current cap on borrowing of 60 per cent of GDP. The bank’s suggestion would raise debt to 70 per cent of GDP by 2024.

​​“Additional state borrowing will assist boost GDP’s growth potential to rebound at a quicker rate,” Sethaput Suthiwartnarueput, the governor, told a briefing. If the government does not give further economic support immediately, it will be difficult to lower public debt in the long run, he said.

The 1-trillion-baht borrowing may be better now rather than later, Sethaput added.

So far, the government has issued a total of 1.5 trillion baht in loans to fund Covid-related stimulus measures, including 1 trillion baht last year and 500 billion baht this year.

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