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Thailand's economic activities picked up in the fourth quarter
of 2020 with support by public spending but the economy still
contracted for the year in line with our expectations.
A full economic recovery in 2021 is unlikely to materialise at
this point, given the second COVID-19 outbreak and subsequent
closures. Lingering localised restrictions in response to the
latest outbreak are likely to extend the timeline for a return to
normality and mute Thailand's economy rebound in return.
The latest USD7billion fiscal stimulus package will soften the
shock from the new wave of infections, but will fall short from
expediting Thailand's economic recovery in the short term.
Latest GDP data suggest that Thailand's economic recovery
continued through the final quarter of 2020, as the magnitude of
contraction eased to 4.2% year on year (y/y) in the fourth quarter,
up from 6.2% y/y in the third. Even so, the Thai economy posted the
fastest annual contraction (6.1% y/y) in over two decades,
reflecting the huge blow from the coronavirus disease 2019
(COVID-19) virus pandemic in 2020.
Public spending struggles to reignite the
economy
Private consumption improved in the last quarter on the back of
government stimulus measures and special long holidays. Spending on
both durable and non-durable goods expanded during the final
quarter, but not nearly enough to pull the economy out of negative
territory. Private consumption fell by 1% y/y during 2020.
The contraction in private investment eased to 2.5% y/y in the
fourth quarter due to higher investment in machinery and equipment.
This was from higher imports of capital goods from the launch of
new mobile phone models. Investment in construction continued to
contract, but the pace of contraction eased as the sales of
construction materials picked up. Although this improvement was
slightly exaggerated from the low base effect from last year when
the budget for fiscal year (FY) 2020 was delayed. Public investment
driven by both the government and state enterprises showed a robust
growth in Q4, offering the biggest support to growth, but not
enough to put the domestic economy in a meaningful recovery
path.
COVID-19 disruptions are weighing on Thailand's external
sector
On the trade front, high frequency data for merchandise exports
reflected some improvement in the fourth quarter, but not
necessarily because of market conditions. Exports of goods fell by
1.5% y/y, easing the pace of contraction thanks to a marginal
improvement in exports of automotive and petroleum-related goods,
which were supported by the modest recovery in trading partners'
demand and also the base effect from last year when a lot of oil
refineries were closed down for maintenance. Exports of services
suffered a 74.8% y/y contraction in the meantime, as the Thai
borders remain shut to most tourists.
Lingering COVID-19 related restrictions will delay
economic recovery
The latest fourth-quarter GDP result came in line with IHS
Markit expectations and confirms our view that the pace of
Thailand's economic recovery will disappoint in the near-term.
Although 2021 growth will most likely be lifted by favorable base
effects, Thailand's growth outlook remains clouded by restrained
domestic conditions and an uncertain global economic environment.
IHS Markit downgraded the real GDP growth forecast for 2021 to 3.1%
in the February forecast round which remains unchanged for now.
The government rolled out a USD7-billion stimulus package last
month in response to the second virus wave, which will likely
soften the shock from the new wave of infections somewhat. Going
forward, private consumption is likely to improve gradually as long
as the new wave of infections is contained within the first half of
the year. However, high household debt, together with the COVID-19
virus pandemic shock, will remain a major drag on private
consumption growth.
On the fixed investment front, the outlook remains dim as
sluggish domestic and external demand are expected to trigger some
delay in investment decisions by businesses. The hope for better
near-term growth prospects lies with the government funded
infrastructure projects, as opposed to private sector investments.
Therefore, the speed of economic recovery will be dependent on the
government's ability to meaningfully jump-start these
initiatives.
On the trade front, exports should recover somewhat in 2021
assuming the vaccine rollout drive proceeds in line with
expectations around the world. Having said that, the role of
exports in driving Thailand's recovery will likely be impeded by a
strong currency.
Posted 25 February 2021 by Jola Pasku, Senior Economist, Economics and Country Risk
