SCB’s economic centre predicts better-than-expected economic performance this year
The Siam Commercial Bank's Economic Intelligence Centre (EIC) expects the Thai gross domestic product (GDP) next year to expand by 3.8 per cent on the back of improving global growth, fiscal stimulus packages and vaccine progress.
Global growth, however, is likely to get worse due to recent Covid-19 resurgences before improving. The recovery in 2021 is likely to be gradual, supported by vaccine progress, stimulus packages and less severe scarring effects.
However, most key economies (except China) in 2021 should remain below their pre-Covid levels in 2019. In late 2020, the Covid-19 resurgences in several countries should result in the tightening of lockdown measures and hence slow economic recovery in the near-term.
Looking forward, global economic recovery in 2021 will likely be gradual and uneven across countries and industries. Developed countries, which are expected to be vaccinated in the first half of the year, should recover faster compared to developing countries.
In Thailand, better-than-expected private consumption recovery in the third quarter of this year should result in smaller-than-expected GDP contraction in 2020.
In the third quarter of this year, Thailand’s GDP fell by -6.4 per cent year on year, supported by faster recovery in private consumption on the back of more holidays and stimulus packages.
However, recovery in the fourth quarter will likely slowdown somewhat due to Covid-19 resurgences in several countries, which should affect consumer confidence and domestic tourism. As a result, EIC expects Thai GDP growth this year to fall by -6.5 per cent versus its previous forecast of -7.8 per cent.
Looking forward, EIC expects the Thai economy next year to grow by 3.8 per cent due to the low base effect, global recovery, fiscal spending and additional stimulus packages as well as Covid-19 vaccine, which is expected to be distributed in the second half of 2021.
However, scarring effects should continue to pressure private domestic demand recovery. Public spending is likely to be a key supportive factor, especially public investment spending.
In addition, the Bt1-trillion recovery package still has about Bt500 billion ready to be disbursed in 2021.
Recently, the government also extended some co-pay measures, suggesting their ready stance to continue fiscal policy easing to support private consumption.
Thai exports in 2021 is expected to rebound and grow by 4.7per cent on the back of global economic and trade recovery. However, the severe shortage and hence rising cost on freight containers in late 2020 and early 2021 as well as strong baht due to weakening dollar should remain key headwinds for export recovery.
The progress in high efficacy rate vaccines, combined with Thailand as a production base for AstraZeneca, should support Thailand's tourism recovery in the second half of next year, when both key foreign tourists' countries and Thailand have been widely vaccinated.
On tourist arrival forecasts, EIC expects around 8 million foreign tourists in 2021, which remains significantly lower than the foreign tourist arrivals in 2019 (around 40 million).
Meanwhile, with material scarring effects on Thai economy, the effects should continue to pressure private consumption and investment recovery through:
• Fragile labour markets on the back of elevated unemployment, rising underemployment, and income slowdown,
• Bleak business registration and dissolution expected to continue, and
• Rising household debt to income ratio.
On monetary policy, EIC expects the Bank of Thailand to keep its policy rate at 0.5 per cent throughout 2021.
EIC expects strengthening Thai baht pressure to continue with the baht coming in the range of Bt29.5-Bt30.5 against the dollar at end-2021, mainly due to a weak greenback, resulting from global economic recovery, less volatile global trade tensions, larger US budget deficit, and hence capital inflows to emerging markets, including Thailand.
The key downside risks on the Thai economy in 2021 include Covid-19 resurgences and delay in wide vaccine distribution, and issues on political stability, which could impact investors’ confidence. The other risk is stronger Thai baht, compared with key trading partners, to impact external demand’s recovery.
