U-shaped recovery forecast for Thailand, with GDP shrinking by 10 per cent

The country’s GDP this year is expected to have a 10-per-cent contraction, while the economy is likely to show a U-shaped recovery compared to the same period last year.
The food and beverage, electrical appliances, hotel and restaurant sectors are still causes of concern. 
Nattaporn Triratanasirikul, KResearch assistant managing director, said the Thai economy has been mired in uncertainty in the midst of the Covid-19 crisis, the strengthening of the baht and domestic political issues. 
Hence, KResearch has revised down its Thai economic projection for 2020 to -10 per cent from the previous -6 per cent. Given the fluid situation, any economic recovery may be U-shaped, while policymakers face the dilemma of determining how to tackle the economic crisis. 
On one hand, they must carefully consider the need for additional stimulus measures that are both timely and sufficient to sustain the economy – now at the base of the U shape – so the economy can emerge from the doldrums sooner rather than later. On the other hand, these measures, if implemented, come at a hefty cost and may balloon public debt. Moreover, the possibility of a second-wave of Covid-19 poses another challenge as the country is gradually reopened.
Though the government has future spending plans in place, they are primarily geared towards economic rehabilitation and job creation. Therefore, public debt is not a cause for concern at this time. Meanwhile, the Monetary Policy Committee may not cut its policy rate anytime soon and instead choose to respond to specific events it deems appropriate, especially after the debt moratorium measure expires in the third quarter. 
Thanyalak Vacharachaisurapol, KResearch’s deputy managing director, said, “Loans within the Thai commercial banking system are projected to grow 6.5 to 8 per cent in 2020, compared to the 2.3-per cent pace reported at the end of 2019. Such atypically high growth has been driven by relief measures and increased loan applications from the business sector to enhance liquidity, rather than real economic activity. In fact, close attention must be paid to asset quality as NPLs may lean towards 3.5 per cent by the end of 2020, against 3.23-per cent recorded at the end of June 2020. Despite the government’s need to mobilise massive funds from the financial market, existing tools of the Bank of Thailand will likely help prevent any impact on interest rates within the system, while current deposits in the banking system have grown approximately 9 to 10 per cent over the figure for 2019.”
Moreover, the government is expected to issue measures to assist debtors whose financial burdens have increased, particularly in boosting employment for SMEs, following the first six to eight months during which the government issued liquidity boosting measures totalling Bt360 billion. 
The effectiveness of these additional measures will depend on either customers’ level of credit risk mitigation, or the relaxation of risk assessment criteria of target customers for financial institutions. Aside from ample liquidity in the system, commercial banks’ capital remains robust, with a Tier 1 capital ratio of 15.8 per cent, greater than the minimum requirement of 8.5 to 9.5 per cent and even higher than that of many developed countries. 
This ensures that the banking system will continue to serve as a leading mechanism in supporting customers during this crisis.
Regarding business trends, Kevalin Wangpichayasuk, KResearch assistant managing director, noted that while business income may have improved in certain areas in line with the gradual lifting of lockdown measures and the government’s stimulus packages, the situation is far from a return to normalcy. 
The three business sectors deemed to be most vulnerable at present are: food and beverage, electrical appliances, and hotels and restaurants – these groups may be due to receive continued fina