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Virus poses new threat to Thai economy

Thailand is expected to record subdued economic growth this year, clouded by external uncertainties and a budget debacle that could bring GDP growth under the 2% threshold.

Boris Sullivan

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Crowded downtown area in Bangkok

The outbreak of the deadly coronavirus threatens to derail a fragile stabilisation in the Thai economy, already facing uncertain times amid the escalating US-China trade dispute.

According to Thanavath Phonvichai, president of the University of the Thai Chamber of Commerce (UTCC), Thailand is estimated to lose 80 to 100 billion baht in income, mainly from tourism, because of the deadly virus outbreak, shaving economic growth by 0.5-0.7 percentage points this year.

The Thai government has set an ambitious target of 41.8 million tourist arrivals this year but coronavirus is likely to make those figures harder to achieve.

Thailand worst hit by coronavirus outside China

Thailand has so far been worst hit by coronavirus outside of China

Thailand has so far been worst hit by coronavirus outside of China, with 16 patients and 61 others quarantined preemptively.

The government has already scaled back expectations. “We will try to achieve 40 million,” said Yuthasak Supasorn, governor of the Tourism Authority of Thailand said on local television. 

Experts expect Chinese arrivals to fall by about 50% over the next few months due to the tour group ban enforced since January 27th. About 800,000 Chinese travel to Thailand monthly on average spending about 50,000 baht ($1,630) on average.

Over-reliance on external demands as a source of growth makes it difficult for the Thai economy to adjust to shocks

Bandid Nijathaworn – Visiting professor, HItotsubashi University, Tokyo,
former deputy governor, Bank of Thailand (SPeaking at a foreign Press meeting)

The World Bank in early October slashed annual economic growth forecasts to 2.5%, citing declining exports, global trade uncertainty, slowing employment and wage growth, and subdued private investment growth.

Subdued growth forecast

But other private institutes are event predicting figures closer, or below, the 2% threshold.

Promised economic reforms and public investment have been slow, although the government has vowed to boost the country’s competitiveness and has big infrastructure plans.

Thailand is expected to record subdued economic growth again this year, clouded by external uncertainties, with the 2020 budget debacle having the most negative effect, says Talis Asset Management.

Southeast Asia’s second-largest economy is projected to expand by a mere 1.9% this year as a delay in fiscal 2020 budget disbursement takes a toll on attempts to stimulate domestic economic growth, said chief executive Chatrapee Tantixalerm.

Thailand’s economy is out of sync because of the changing nature of globalisation. The benefits of labour -cost arbitrage are declining while the importance of productivity and efficiency is rising

Pavida Pananond – Associate professor of International Business,
Thammasat Business School, Thammasat University

Productivity and Private Investment critical

As Thailand seeks to transition to high-income status by 2037, boosting productivity and reviving private investment will be critical, according to the World Bank’s Thailand Economic Monitor report, released today.

Thailand has been trapped in a low growth, low inflation, and low interest rate environment , with increasing problems of corruption, governance, and inequalities.

BANDID NIJATHAWORN – VISITING PROFESSOR, HITOTSUBASHI UNIVERSITY, TOKYO,
FORMER DEPUTY GOVERNOR, BANK OF THAILAND

To achieve its vision of being a high-income country by 2037, Thailand will need to sustain long-run growth rates of above 5 percent, which would require a productivity growth rate of 3 percent and increase investment to 40 percent of GDP.

“Boosting productivity will be a critical part of Thailand’s long-term structural reform,” said Kiatipong Ariyapruchya, World Bank Senior Economist for Thailand

“Increasing productivity, particularly of manufacturing firms, will depend on increasing competition and openness to foreign direct investments, and improving skills.”

KIATIPONG ARIYAPRUCHYA, WORLD BANK SENIOR ECONOMIST FOR THAILAND

Sustaining higher productivity growth will require removing constraints that prevent new firms, especially foreign firms, and skilled professionals from entering the domestic market.

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