Fitch Ratings – Hong Kong – 29 Oct 2020: Fitch Ratings has affirmed Thailand’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BBB+’ with a Stable Outlook.
Strong public and external finances
Thailand’s ratings are supported by strong public and external finances, which have provided buffers to respond to the economic shock and market volatility associated with the coronavirus pandemic. General government debt as a share of GDP will rise sharply from the policy response and decline in nominal GDP, but a record of prudent fiscal management limits public finance risks, in our view.
The ratings are primarily constrained by weaker structural features relative to ‘BBB’ peers, including lower World Bank governance scores and per capita income. Persistent political uncertainty also weighs on the credit profile through its impact on the economic outlook and policymaking effectiveness.
Thailand’s economy will contract by 7.8% in 2020
Fitch forecasts Thailand’s economy will contract by 7.8% in 2020, more sharply than its rating peers (current BBB median of -6.7%) due to its dependence on external trade and tourism inflows. The latter accounts directly for around 11.4% of GDP.
A highly successful containment of the coronavirus locally – fewer than 4,000 cumulative cases have been reported through October – is supporting a recovery in domestic demand following a lockdown in 2Q20, when GDP shrank by 12.2% yoy.
However, a near-complete halt in foreign tourism since April and a slump in merchandise exports continue to drag on economic performance.
Thailand’s political environment remains fragile
Thailand’s political environment remains fragile, evident from the recent escalation in youth demonstrations. In our view, heightened political disruptions are unlikely to have immediate economic implications, especially as international tourism, which could normally have been deterred, has already diminished due to the pandemic.
However, the rise in political uncertainty underscores political risks over the medium term, which could further weigh on potential economic growth by hampering consumer and business sentiment. Policymaking could be hindered by the ongoing political volatility, evident from a cabinet reshuffle this past summer that underscored the fragility of the government coalition.
Thai economy to rebound by 3.8% in 2021
We expect the economy to rebound by 3.8% in 2021, underpinned by government stimulus measures and improving external demand for merchandise exports, as well as base effects. This recovery will be relatively sluggish in light of the dependence on inbound tourism flows, which will recover slowly.
A cautious reopening to international tourists is underway, but we expect a gradual recovery to begin only in 2H21 due to lingering uncertainty over the evolution of the pandemic and the availability of effective vaccines and treatments. A recovery of domestic demand and local tourism will only partly offset losses from fewer inbound tourists, and will be constrained by rising vulnerabilities associated with household debt.
