Key Points
? TRIS Rating revises its forecast of Thailand?s 2021 real GDP growth downward to 1.0%, from its Feb/2021 forecast of 2.6% growth, mainly due to the severity of economic fallout from the third wave of the COVID-19 outbreak. The country?s overheating public health system and slow progress of vaccine rollout will likely cause further delays in the revival of the country?s tourism industry and overall economy. We project 2022 real GDP growth to be in the 3.0%-3.5% range with any return to pre-COVID-19 levels unlikely before the third quarter of 2023.
? The new wave of the COVID-19 outbreak has exacerbated the already-weak domestic private consumption. While government financial relief measures should alleviate the falling consumption to some extent, the surge of new infection caseloads and a drawn-out timeline in containing the spread of virus continue to plague the unhealed economic wounds from last year, especially in the SME sector.
? A faster-than-expected recovery of trade, supported by robust recoveries in China and the US, should serve as a key recovery driver for the Thai economy. However, the recovery of trade volume is facing headwinds in the form of relentlessly rising international logistics costs, which are contributing to a deterioration in the current account balance and the depreciation of the Thai baht from last year.
We revise our forecast for Thailand?s real GDP growth in 2021 to be 1.0%, down from our forecast of 2.6% growth in Feb/2021. The revision is mainly due to the severity of the third wave of Coronavirus Disease 2019 (Covid-19) outbreak that began in April 2021, with much higher daily new infection caseloads and mortality rates compared with the previous outbreaks. The severity of the outbreak has forced the government to raise the level of social-distancing measures. The downside risk of the country?s overheating public health system remains high, which could be a key factor contributing to the government?s decisions to adopt stricter virus containment measures with consequential implications on the magnitude of economic losses. In combination, these adversary developments continue to weaken consumer confidence, depressing economic and social activities, resulting in a drawn-out timeline of recovery of the overall economy. We project Thailand?s real GDP growth in 2022 to be 3.0%-3.5%, while it is likely that the Thai economy will not return to pre-COVID-19 levels until the third quarter of 2023.
External trade is likely to be a key driver of Thailand?s economic recovery this year. A faster-than-expected expansion of global trade is being supported by robust economic growth in China and a swift domestic re-opening of many major economies, especially the United States (US). We expect the external trade sector to experience a V-shaped recovery back to the 2019 level. However, the recovery of trade volume, especially with Western partners, is facing headwinds in the form of rising international logistics costs, which may remain a significant issue until the end of the year.
Real GDP in Q3 expected to contract due to aggravated private consumption
We revise our Q2/2021 real GDP growth upward to 6.7%, from 6.1% in our Feb/2021 forecast, due to the higher-than-expected growth in external trade. However, the surge of daily COVID-19 new infection caseloads with increasingly stringent social distancing measures and a slow progress of vaccine rollout continue to aggravate consumer confidence and private consumption. We expect that new daily infections should decline and stabilize by the end of September and the government will subsequently be able to ease its containment measures in the last quarter of 2021. We adjust the economic growth forecast for Q4/2021 downward to 1.0% as we cut the expected number of foreign tourist arrivals to 0.1-0.3 million this year, from 3.5 million in the previous forecast.
Weakening private consumption as business closures and job losses rise
The third wave of COVID-19 outbreak and associated strict social distancing measures have aggravated the already-weak domestic private consumption. We revise our estimate for 2021 annual growth of private consumption downward to 0.5%, from 1.5% in the previous forecast. We expect that the government?s economic relief measures will only partially mitigate the impacts from the economic fallout and these are likely to become less effective without a resumption of social activities. A drawn-out timeline in containing the spread of virus continues to plague the unhealed economic wounds from last year as business closures and unemployment continue to rise. This is particularly evident in the small and medium enterprise (SME) sector, which makes up one third of national GDP and employs 70% of the formal labor force.
A sign of financial distress is the rising proportion of non-performing loans (NPL) in the SME sector, which surged to a historical high of 7.3% of total loans at the end of Q1/2021, from 4.8% at the end of Q1/2020. NPL of SME made up 45% of total NPL, equivalent to THB241.7 billion. We see the NPL issue of SMEs becoming worse as the special mention loans (SML) ratio of SME has also soared to 13.1%. Meanwhile, the number of applicants for unemployment benefit (under section 33 social security) remains persistently high, reaching 307,883 people at the end of June 2021. We expect these figures to remain high until this third wave of the outbreak is brought under control.
V-shaped recovery in external trade supported by robust economic expansion of China
We revise our forecast for the growth of exports and imports of goods and services to 3.5% and 5.1%, respectively, from 0.7% and 0.3%, respectively in our previous forecast. The revision has incorporated a cut in the projected number of foreign tourist arrivals to 0.1-0.3 million people, from 3.5 million in the Feb/2021 forecast. We expect a V-shaped recovery in the external trade sector will be bolstered by growing demand from China and the US. Exports to the US made up 15% of Thailand?s total export value in 2020 (USD34.1 billion), followed by China and Japan with around 13% (USD29.6 billion) and 10% (USD22.7 billion), respectively. The recent uptick in export demand has been led by China and the US, with the monthly value of exports to China exceeding the US since April 2021.
The recovery of trade volume is still facing headwinds from the relentlessly rising international logistics costs, which may remain a significant issue until the end of the year. Skyrocketing logistics costs in container and dry bulk shipping since mid-2020 are rooted in an imbalance in demand between the Western and Eastern hemispheres, resulting in a large differential in shipping rates between the westward and eastward routes. With an absence of foreign tourist receipts, rising freight costs have resulted in a widening service deficit since Q2/2020 and a current account deficit since Q4/2020. We expect the current account balance for the whole year of 2021 to register a deficit for the first time since 2012, pressuring the value of the Thai baht which has depreciated significantly from last year.