Thailand’s economic recovery will not become apparent until the second half of this year, economists said on Monday. They also expect the Bank of Thailand (BOT) to lower the country’s benchmark lending rate again this year.
The ongoing drought, the delay in the disbursement of the government’s 2020 fiscal year budget, and the outbreak of the coronavirus mean that the country can almost abandon any hope economic expansion in the first quarter of 2020.
The recovery of the tourism sector will normally take at least one quarter after a slump, with no one knowing when the outbreak will be contained. If the spread of the virus peaks and dissipates before the end of March, we might see an economic recovery by the second half of this year, said Amornthep Chawla, head of research at CIMB Thai Bank.
“For the first quarter and potentially the whole year, the factors that will dominate include drought, the delayed budget, and the outbreak of the coronavirus, which has affected tourism and the export sector,” he told Thai Enquirer.
In its previous prediction, CIMB Thai expected the country’s economy to expand by 2.3 per cent in 2020. The National Economic and Social Development Council (NESDC) on Monday lowered its projections for this year from the range of 2.7-3.7 per cent down to 1.5-2.5 per cent. The GDP expanded by 1.6 per cent in the fourth quarter of 2019, which put GDP growth for the entirety of last year at 2.4 per cent.
“We are seeing more downside risks for this year, but since the economy is not doing so well, there is a need to see things from quarter to quarter,” he added.
The Ministry of Tourism and Sports said the outbreak of the coronavirus would lead to 5 million fewer visitors this year, accounting for 250 billion baht in loss of income.
The BOT has predicted that under this scenario, at least 1.5 per cent of Thailand’s GDP growth will be gone in 2020. If this happens, the country’s economic growth will not surpass 2 per cent this year, with a growth of less than 1 per cent in the first quarter, which would be the worst quarter of 2020. The central bank also said that exports might contract this year due to the impact of the virus on China’s production chain.
Tim Leelahaphan, Thailand economist at Standard Chartered Bank, told Thai Enquirer that besides the outbreak of the virus, which is still unpredictable right now, the fiscal role is “limited” because of the delay in the government’s yearly budget, which would not come into effect until April.
“Since the fiscal side is still unable to do anything, monetary policy might be the way to go. There is a chance of another cut, but we are not calling it for the next month,” he said. “The key is that there is also an alternative policy, and we are in a difficult position since we understand that the monetary [policy] is not going to be that effective, but still needed.”
Amornthep said impacts from the coronavirus, drought, and the delay in the 2020 fiscal year budget will continue into the second quarter and the BOT might have to lower the policy interest rate by another 25 basis points. The country’s benchmark lending rate is already at a historic low of 1 per cent.
“The next meeting on March 25 will be too soon to cut the rate again and we will have to wait and see the economic numbers going forward,” he said. “But since the fiscal side is not running fully, the monetary policy might need to be more accommodative,” he added.
Amornthep’s view on another cut of the policy interest rate was reflected by analysis from Krungsri’s Global Market Group, who believe that the central bank might have to lower the rate down to 0.75 per cent to encourage private sector investment. They said that the weakening baht, from around 30 baht last year to around 31 baht last week, is still not reflecting the country’s economic fundamentals and the depreciation has yet to support the economy.
The bank analyst added that things are looking better on the fiscal side with the passing of the budget bill last week. However, the government’s ability to disburse the budget is still under question since there is less time to do it following a delay of more than four months.
Tisco’s Economic Strategy Unit (ESU) previously said that the Budget Bureau’s disbursement target of 100 per cent for both regular and investment budgets for this fiscal year would be “very challenging”. They cited historical records in the past five years, which show that the disbursement of regular and investment budgets have clocked in at an average of 97 per cent and 72 per cent respectively.
Amornthep said the government’s measures to promote meetings, incentives, conferences, and exhibitions (MICE) tourism and local tourism would be hard to accomplish when people are still worried about the outbreak of the coronavirus. He said the measures to promote domestic tourism will not be able to replace the missing number of foreign tourists under the circumstances. The measures to help tourism operators and SMEs are more supportive measures than a stimulus, he added.
“The measures that I want to see more of are actually measures for people living pay check-to-pay check who pay taxes,” he said. “Affected operators should be supported but there is still this group of people and this may be time to stimulate them to spend, as their debt level is not that high. What they are lacking is confidence,” he added.
Amornthep said the recovery of the tourism sector will most likely be in the second half of the year as the slump in the sector will normally take around two quarters to recover.
“Recovery signs might be visible towards the end of the second quarter but we believe that the recovery will be more apparent from the third quarter onwards,” he said.
Tim said the assumption that 5 million visitors could be missing due to the outbreak is “a bit much” since the Thai tourism sector has never contracted by a double-digit figure from previous outbreaks.
“Around 7 per cent of expected visitors were absent during the SARS outbreak and around 6 per cent for MERS,” he said. “But one corrector that we have often seen in the past is that when the tourism sector does recover, it will recover very strongly due to pent-up demand,” he added.
If the outbreak is contained within this quarter, Amornthep also expects China’s demand and outbreak impact on the production line to begin to recover in the second quarter, and that will be reflected in the recovery of Thailand’s exports in the second half of this year as well.
Tim said that what he wants to see is some coordination between the monetary and fiscal policy, as the fiscal side is still weakening. Looking forward, the positive factors that he can see are the corrector for the recovery of the tourism sector mentioned above, and the disbursement of the 2020 fiscal year budget. However, these will take time.
“We do want to see more domestic tourism during the Songkran period, but Chinese tourists are the main contributor, not only within in the first quarter, but they are usually the main contributor at least until the end of third quarter,” he said. “There is a golden week in the third quarter and we hope for a recovery by then. We know that the recovery will be strong, but it will take time before we can get there,” he added.