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Economics

World Bank lowers Thai GDP growth outlook to 2.2%

In the Thailand Economic Monitor released today, the World Bank adjusted its outlook on Thailand’s economic growth this year to just 2.2% from its previous forecast of 3.4%.

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BANGKOK, July 15, 2021 – Thailand’s economy continues to take a heavy toll due to the COVID-19 pandemic and is projected to expand modestly at 2.2 percent in 2021, revised down from the 3.4 percent growth projected in March, according to the World Bank’s latest Thailand Economic Monitor “The Road to Recovery” published today.

Continued assistance to the poor and vulnerable, including informal workers, will be necessary as COVID-19 continues to impact Thailand’s economy.

The weaker outlook reflects the impact of the ongoing third wave of the virus on private consumption, and the likelihood that international tourist arrivals will remain very low through the end of 2021.

Thailand recorded 40 million tourist arrivals in 2019, but the expected number of tourist arrivals in 2021 has been revised sharply downward from a previous forecast of 4-5 million to just 0.6 million.

“The economic shock associated with COVID-19 has adversely affected employment, incomes, and poverty, but the government’s comprehensive social protection response has been impressive in mitigating its impact,” 

Birgit Hansl, World Bank Country Manager for Thailand

“Thailand’s fiscal space is still sufficient to allow supporting measures to protect the poor and most in need in the months to come.”

Thailand has performed relatively well in terms of the scale and speed of its fiscal response

The government expanded what was previously a relatively modest set of cash transfer programs to implement one of the largest such responses to COVID-19 in the world.

Preliminary simulations suggest that more than 780,000 additional people could have fallen into poverty in 2020 if the government had not scaled up social assistance.

“The crisis in 2020 demonstrated Thailand’s ability to leverage its robust and universal digital ID, sophisticated and interoperable digital platform, and a number of administrative databases to filter eligibility for new cash transfer programs. Going forward Thailand would need to consolidate these efforts and be better prepared to respond to crisis through setting up a social registry.” said Francesca Lamanna, Senior Economist at the World Bank.

Recovery might be delayed due to new COVID-19 variants

Economic activity is not expected to return to its pre-pandemic levels until 2022, with the GDP growth rate projected to rise to 5.1 percent. However, the pace of recovery will depend on Thailand’s vaccination progress, the effectiveness of fiscal support, and the extent to which international tourism resumes.

Exports of goods are expected to support the Thai economy in 2021, due to recovering global demand for automotive parts, electronics, machinery, and agricultural products.

Risks are further tilted to the downside as the COVID-19 recovery might be delayed due to new COVID-19 variants becoming resistant to treatments or vaccines.

Key Findings

Successive waves of COVID-19 disrupted the Thai economy in the first half of 2021, but their impact was mitigated by recovering global demand and substantial fiscal support.

  1. The shock of the second wave caused the economy to contract by -2.6 percent in the first quarter of 2021, following a 6.1 percent drop in GDP in 2020—one of the steepest contractions among Association of Southeast Asian Nations (ASEAN) member states.
  2. A third wave of infections emerged in April 2021 has proven especially severe with strict containment measures reducing mobility and negatively affecting consumption and business sentiment.
  3. Exports of goods have provided substantial support to the Thai economy, driven by recovering global demand for automotive parts, electronics, machinery, and agricultural products.

Economic activity is not expected to return to its pre-pandemic levels until 2022, and the recovery is projected to be slow and uneven.

  1. The growth forecast for 2021 has been revised downward from 3.4 percent in March to 2.2 percent, reflecting the anticipated impact of the third wave of COVID-19 infections on private consumption, and the likelihood that international tourist arrivals will remain very low through the end of 2021.
  2. Private consumption is expected to see a small expansion of 2.4 percent, with the impact of mobility reductions, projection on vaccination progress, containment measures and income losses partially offset by social assistance measures.
  3. The recovery is expected to accelerate in 2022, with the annual GDP growth rate projected to rise to 5.1 percent depending on: (i) solid progress on domestic vaccination rates; (ii) an improvement in the global trajectory of COVID-19 sufficient to allow international tourism to partially recover; and (iii) the full disbursement of the recently approved THB 500 billion fiscal response package.
  4. The government plans to vaccinate 70 percent of the population (50 million people) by the end of 2021, and any delay in the rollout schedule could adversely impact domestic mobility, consumption, and tourism.

The economic shock associated with COVID-19 has adversely affected employment, income, and poverty, but the government’s quick response has mitigated its impact.

  1. The official unemployment rate remained at 2 percent in the first quarter of 2021, up from 1 percent in the first quarter of 2020. More than half of all unemployed workers were formerly engaged in the services sector. By the first quarter of 2021, there were 710,000 fewer jobs than in the fourth quarter of 2020.
  2. Employment in agriculture declined by 10.9 percent, but employment in all other sectors increased by 2.5 percent, in line with the recovery in global demand for goods exports. The automotive and construction industries posted the highest quarterly rates of employment growth at 3.3 percent and 7.5 percent, respectively.
  3. World Bank simulations demonstrate that in the absence of the government’s relief measures, the headcount poverty rate would have increased from 6.2 percent in 2019 to 7.4 percent in 2020—representing an additional 700,000 people falling below the poverty line—before declining to 7 percent in 2021.
  4. Poverty rates would have increased by 1.6 percent in rural areas and by 1 percent in urban centers, with the largest increase in northeastern Thailand, which had the country’s highest regional poverty rate in 2019. 
  5. The government earmarked about 1 trillion baht in public spending for economic stimulus and support to the most vulnerable households. Around 70 percent of the authorized COVID-19 response spending has been allocated to support households, largely through cash transfers and subsidies, with a smaller share being directed to support the recovery of the private sector.
  6. Between the social assistance and social insurance schemes, over 44 million Thais have now directly benefited or compensated to some degree. Preliminary estimates suggest that more than 80 percent of households received social assistance during 2020.
  7. The total cost of transfers in 2020 was estimated at B386 billion baht or about 2.3 percent of GDP bringing total social assistance to about 3 percent of GDP, more than tripling the 0.77 percent figure of 2019. The bulk of the transfers went to the informal workers and farmers who would have not been considered vulnerable prior the pandemic.
  8. In May 2021, the government announced the approval of an additional 500 billion baht in borrowing, which will fund further support to households and could boost GDP by around 1.5 percentage points over the counterfactual scenario.
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