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The Thai economy in the third quarter of 2021 was severely affected by the COVID-19 outbreak and strict containment measures. After seasonal adjustment, private consumption indicators declined from the previous quarter due to weak household purchasing power, despite supports from the government measures.
The MPC of Bank of Thailand voted unanimously to maintain the policy rate at 0.5% on November 10th assessing that the economy had bottomed out in the third quarter of 2021 and entered the recovery phase following the relaxation of containment measures and the reopening of the country.
The Thai economy would expand at a pace close to the previous projection for 2021 and 2022 on the back of domestic spending that gradually recovered following the relaxation of containment measures, partially offsetting the adverse impact of higher global energy prices.
Economic growth set for 0.7% in 2021
Currently the BoT maintains the existing forecast for economic growth at 0.7% in 2021 followed by and uptick of 3.9% next year.
Meanwhile, downside risks to the economic projection decreased on account of the accelerated vaccination progress.
However, the slow recovery of income and purchasing power would lead to subdued demand-side inflationary pressures. Meanwhile, medium-term inflation expectations remained anchored within the target.
The Commerce Ministry recently reported that headline inflation rose by 2.38% year-on-year in October from a 1.68% increase in September, driven by soaring prices of gasoline and some raw food, especially fresh vegetables, which were affected by floods in several areas.
The fragile economic recovery outlook would still be subject to uncertainties. Thus, there remained a need to monitor the outbreak situation following the re-opening of the country, the momentum of fiscal support, and the pass-through of global energy prices, as these factors would affect the economic recovery going forward.
On exchange rates, the baht relative to the US dollar exhibited more volatile movements owing to monetary policy in advanced economies and uncertainties in the Thai economic recovery outlook.
Thai economy began to edge up in September
In September 2021, the Thai economy began to edge up from the previous month thanks to the relaxation of the COVID-19 containment measures according to the former Press Release of the Bank of Thailand.
Economic growth in Thailand contracted by 6.1% in 2020 due to a decline in external demand affecting trade and tourism, supply chain disruptions, and weakening domestic consumption.
After suffering its worst contraction since the Asian financial crisis in 2020, the economy expanded by 2% in the first half of 2021 amid the third wave of the COVID-19 pandemic and is not expected to recover to pre-COVID-19 levels until 2023. The COVID-19 outbreak has created several additional challenges in the labor market.
The primary impact has been a spike in unemployment rate. By the first quarter of 2021, there were 710,000 fewer jobs compared to the previous year.