The recurring waves of the COVID-19 pandemic in various countries, including Thailand, will directly slow the pace of Thai economic recovery in 2021. As such, EIC revises the Thai GDP forecast down to 2.2% due to the following reasons:

The recovery of foreign tourist arrivals should be slower than previously anticipated. Although citizens in various countries are receiving COVID-19 vaccinations and Thailand could allow inoculated persons to travel into the country with more relaxed quarantine limitations, the recovery in international travel should pick up once herd immunity is widely established in many origin countries. EIC estimates that advanced economies should gradually form herd immunity during Q2/2021 to Q3/2021.

Meanwhile, developing countries in Asia, Thailand’s main source of tourists, should develop herd immunity, starting from Q4/2021 (such as China) to Q4/2022 (such as CLMV), a period slower than anticipated. With such regards, EIC revises the number of international tourist arrivals in 2021 down to 3.7 million persons, with recovery anticipated in H2/2021, particularly in Q4/2021.

Export conditions should be weaker-than-anticipated during H1/2021 from the COVID-19-induced global economic soft patch, the container shortages headwinds, and the strengthening baht. However, factors that should speedup global economic recovery and export growth during H2/2021 include sizable stimulus packages issued in various countries, more targeted city lockdowns, and hastened inoculations that will lead to herd immunity establishments, especially in advanced economies. EIC expects that exports will improve by 4.0%YOY in 2021.

Regarding domestic demand, high-frequency data indicated that the new wave outbreak moderated economic activities, especially those requiring face-to-face interactions. EIC views that the recurring outbreak could be largely contained within 2 months. Even though the second wave consequences might not be as damaging as the first wave due to more targeted lockdowns with support from government stimulus packages, the economic scars will still be further worsened and particularly impact the already vulnerable SME sector and service sector employees.

The overall pace of Thai economic recovery should slowly progress as the tourism sector, Thailand’s key driver in terms of economic growth and employment, has yet to recover. Thus, the economic recovery will be uneven between different business sectors. Furthermore, various uncertainties and downside risks linger.

Risk factors that warrant monitoring in 2021 include 1) the duration required to successfully contain the second wave outbreak, 2) potential delays in widespread vaccine distribution in Thailand, 3) economic scars that could deteriorate financial stability via increasing bad debt 4) political instability in Thailand that could weaken investor confidence, 5) drought as the water stored in major dams approached a level lower than the historical average, and 6) the stronger baht appreciation relative to trading partners and competitors, which could slow export recovery and international travel demands.

Author:  Economic Intelligence Center (EIC)

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EIC or Economic Intelligence Center, a unit of Siam Commercial Bank Public Company Limited, is established to provide business executives with valuable insights for effective decision making.

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