Big Read – Thailand can possibly avoid recession if it plays its cards correctly

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Thailand is likely to be able to withstand the onset of the global economic recession as the country is likely to use its fiscal policy to spur growth while monetary policies are tightened, economists say.

Thailand, which has had its fair share of economic slowdown over the past few years and has been hoping to see recovery over this year and next, will need to put more emphasis on spurring the domestic consumption in order to offset any impact from a global slowdown.

“Our view is that there is no severe disruption (e.g., a sharp recession) to regional economies ahead. Even if there is a US recession, e.g., towards end-2023/early 2024 it is not expected to be severe enough to cause massive disruptions in the ASEAN region,” Suan Teck Kin, Head of Research, Global Economics and Markets Research says.

Despite the recession mode that all banks around the world are projecting, UOB’s Suan Tek Kin says that the house view for the United States economy for 2022 is that it will still record at 2% growth in the gross domestic product (GDP), and 1.5% in 2023.

“In the next 6 months or so, probability of a recession in the US are relatively low, although it is not zero. However, as the US Fed continues to tighten aggressively, activities will slow and there is reflected in the forecast figures and the risks of recession will rise,” Suan Tek Kin told Thai Enquirer.

Suan Tek is not alone in his prediction for a global slowdown, all major global banking giants from Goldman Sachs to JP Morgan to Nomura have all started to predict a slowdown in all major developed economies that will have a knock-on effect on the emerging market economies such as Thailand and other members of the Asean grouping.

“Over the last month, we have made material forecast changes. A US recession starting this Q4 is our new base case. We also expect recessions across the euro area (EA), UK, Japan and other smaller economies,” Sonal Verma, head of research at Nomura said in a report to clients.

Sonal said that the move is synchronized with global growth downturn would slow most economies but adds that it would not be as deep recession as the world witnessed during the 2008 ‘global financial crises, when the global economy shrank by as much as 3.8% or the 4.9% decline seen during the 2020/2021 impact from the outbreak of the Covid-19 pandemic.

The recession in 2022 is likely to be a little longer and more severe than the mere 1.5% growth the world had seen in 2001.

Asian Impact

Asia, which has heavy reliance on the global trade, is likely to be impacted and with countries such as South Korea, Hong Kong and Japan are likely to be in recession, while other economies may barely scrape through.

Singapore, on Thursday reported a 0% growth for its Q2, 2022 thus missing the 1% growth that was expected by the market. This is likely to put a dent on the expectations that the city-state’s gross domestic product (GDP) would grow by 3-5% during 2022 against 7.6% Singapore recorded in 2021.

China, which has been the saving grace for the region ever since the global financial crisis, is unlikely to be able to meet the obligations of being the big brother of the region to help sustain the growth as the country continues to implement the ‘zero’ covid policy.

China, which accounts for nearly 20% of all exports from Asia which is 2 times the level in 2008, has been witnessing a gradual economic slowdown as lockdowns and property bubble takes foothold in the once roaring economic powerhouse of Asia.

This has put a dent on the domestic demand because out of the 20% Asian exports to China, about 60% was destined for domestic consumption, and with a weaker economy, and as long as the ‘zero’ covid policy remains in place, the likelihood of a rise in demand in China seems very unlikely.

The only thing to look forward to from China is the fact that the Chinese central bank has been supporting police which is the opposite of the Federal Reserve in the US, this, Suan Tek Kin of UOB says, would be reduce the risk of a sharp downturn in China.

Exports To Rescue

The weakening Thai Baht is likely to help the export sector that has so far been the stellar performer for the Thai economy this year.

As the Thai Baht touches new 7-year lows each passing day, the export sector has been reaping the benefits.

Export data as of May 2022 (the latest data available) Thailand showed that for the 5-months ending May 2022, the country’s export rose by 12.9%, while imports grew by 20.2% leaving the country in a trade deficit of US$4.6 billion.

Thammarat Kittisirpat, economist at TISCO Securities, says that the improvement in the exports coupled with the gradual slide in the freight rates are all welcome sign as these issues will help alleviate and offset the slowdown in other sectors of the economy.

The biggest export market in May was the United States, followed by European Union and the neighbouring Asean countries followed as the 3rd largest export market.

But with the possibility of the US and European Union likely to head into a recession by the end of the year, Thailand would need to push more of its products into other emerging economic giants such as India.

Tourism Revival

Tourism, which during the pre-covid days accounted for nearly 15% of the GDP, has crash landed and has only started to pick up after Thailand reopened its borders and allowed freer travel for all. Since the July 1st lifting of the ‘Thailand Pass’ restrictions for foreigners to visit the country, the tourism sector has gradually started to see tourists arriving in droves.

Inbound tourism into Thailand saw 2.03 million people as of June 27, which is a far cry from the 428,000 people seen visiting Thailand during entire 2021. The numbers as of 2019 stood at 39.9 million tourists.

“With the reopening of borders and resumption of cross-border travelling in many countries in Asia, services sector will see sharp recovery after suffering from 2 years of movement restrictions and border closures,” Suan Tek Kin said.

Adding that as such, countries such as Thailand and Vietnam will benefit from this recovery in consumer spending. In 2019, excluding China, visitors from ASEAN, India, S Korea, and Japan accounted for more than 40% of visitor arrivals to Thailand. Therefore, a growing economy in Asia will help support business activities in the tourism/retail sector.

To top this off the weaker Thai Baht would also help as more tourists would want to be thrift about how much and where they spend their money during recession.

A stronger tourism sector, economists say, along with higher exports would make the overall ‘economic growth recovery to be more entrenched.’

Charnon Boonnuch, Thai economist for Nomura is more bullish on the tourism arrival and says that the numbers coming out from the Tourism Authority of Thailand indicates that daily arrivals are up to 42,000 from a mere 25,000 to 30,000 seen in June this year before the ‘Thailand Pass’ was lifted.

“The THA (Thai Hotel Association) added that the return of foreign tourists has so far been driven mainly by high-spending travellers, as they are unlikely to be deterred by rising costs of travelling,” Charnon said in his note.

“This includes visitors from the Middle East, particularly Saudi Arabia, with which diplomatic relations were restored in January 2022. The recovery of tourism receipts could thus be faster than that of the arrivals.”

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