? We project the Thai Economy to grow by 2.6% in 2021. The resurgence of COVID-19 infections has clouded the recovery prospects. The revival of the tourism industry is still the key for a swift revival of the Thai economy in the near term.
? The effectiveness of the Thai government?s containment of the pandemic and economic relief measures especially in supporting vulnerable groups are crucial economic drivers in revitalizing dull domestic demands, and help putting the Thai economy back on the recovery track.
? External demand is on an uncertain recovery path following the resurgence of COVID-19 infections globally. However, fiscal stimulus packages from governments worldwide and the rollouts of vaccinations provide hope of continued recovery momentum.
TRIS Rating forecasts Thailand?s annual GDP growth to be 2.6% in 2021, a rebound from the 6.1% contraction, which is the deepest contraction since a 7.6% contraction in 1998. Although the Thai economy is clearly on a recovery path, the resurgence of the Coronavirus Disease 2019 (COVID-19) infections has once again clouded the recovery prospects. The global public health crisis brought by the pandemic has highlighted the structural weakness of the Thai economy?s excessive dependency on tourism. The reality is, the revival of the tourism industry remains the key for a swift revival of the Thai economy in the near term.
The new wave of COVID-19 infections in Thailand, starting from late 2020, appeared to be more widespread and increased at a much faster rate than the previous wave, as indicated by daily cases of new infections. However, the numbers of new daily cases in February 2021 indicate a downward trend, thanks to the more rigorous measures introduced by the government. The fatality rate of the second wave has also been much lower relative to the number of infections.
We project that the government?s virus containment measures will reduce and stabilize new daily infections by end of February 2021 and the government will subsequently be able to ease its measures in March 2021 allowing economic activities to fully resume. On that basis, we project the Thai economy to expand from the second quarter of 2021 onward, supported by the government?s economic relief measures and improving consumer and business sentiments as the rollouts of vaccinations are progressing worldwide. We project the effectiveness of vaccinations worldwide will allow the Thai government to ease quarantine requirements towards the fourth quarter of 2021. Based on the scenario of ease of quarantine requirements in the fourth quarter, we forecast the number of foreign visitors to be three to four million in 2021.
Private demands are suppressed by the depth of economic fallout in 2020
Private consumption and private investment is witnessing a lackluster recovery, shadowed by the resurgence of the COVID-19 infections. Private consumption and private investment have been adversely affected by the economic and social fallout from the outbreak in 2020 on unemployment, household debt, and business liquidity. Looking ahead, the recovery of private consumption and private investment are largely dependent on the effectiveness of the government?s containment measures, its economic relief measures, and how well it expedites key public infrastructures projects. We project private consumption and private investment to grow by 1.5% and 3.7%, respectively, in 2021.
The outbreak in 2020 caused dramatic increase in unemployment in the country, with unemployment benefit applications reaching record levels. The accumulated numbers of applicants stood at 395,013 people at the end of 2020 (approximately 3.6% of section 33 social security insured). This figure represented only workers employed in the formal sector (45% of the total labor force). Although the accumulated figure at the end of 2020 dropped from the historical peak of 491,662 people seen in October 2020, we expect the figure to rise again in the wake of the second wave of infections.
During the lockdown in the second quarter of 2020, average working hours dropped in all sectors, but were more severe in the hotel and restaurant, art, entertainment, and recreational sectors. Businesses that mainly provide services for foreign tourists, operating in closed or indoor areas, or which cater to social gatherings, such as hotels, restaurants, and cinemas, are the most affected due to the absence of foreign tourists and the containment measures. Businesses in these sectors also faced with liquidity pressure and were at risk of closing for good. Those that survive will likely endure a long and slow recovery period.
Public spending is the key to vitalize domestic demand
In our view, the Thai government?s economic relief measures to the vulnerable group of the population have been effective to a certain degree in bringing the economy on a recovery path. Public spending will continue to be an important driver for the Thai economy over the next few years. We forecast public consumption and public investment to expand by 5.0% and 8.0%, respectively, in 2021. Our view is supported by (1) the remaining THB630 billion from a total of THB1 trillion (as of 22 February 2021) under the Emergency Decree Authorizing the Ministry of Finance to Raise Fund to Solve Problems, to Remedy and Restore the Economy and Society as Affected by the Coronavirus Disease Pandemic, B.E. 2563 (2020); and (2) an increased capital budget in the FY2021 fiscal budget, amounting to THB649 billion, up 16.3% from the FY2020 fiscal budget. Key infrastructure projects slated for development include Map Ta Phut Port Phase 3, Laem Chabang Port Phase 3, and the Rama III Road-Western Outer Ring Road Motorway.
External demands are facing sluggish recovery with high uncertainty on the revival of tourism
TRIS Rating sees the revival of export sector to be sluggish with the world?s major economies still struggling with sharp increases in domestic virus infections. We expect exports and imports to grow slightly by 0.7% and 0.3%, respectively, in 2021. Global demand in the year will most likely be driven by China, thanks to its robust economic recovery, together with economic stimulus packages launched by governments worldwide. We view that consumer and investor confidence will continue to improve throughout the year supported by increasing access to vaccines. The shift in US foreign policy under President Biden, toward multilateralism and regional cooperation, will provide tailwinds to support trade and investment in the ASEAN region.
The recovery of trade remains at the mercy of the ongoing pandemic and rising container freight costs. TRIS Rating, however, is of the view that the ongoing rollouts of vaccinations worldwide and increasing containers production in China will gradually improve the situation. We expect the containers problem to be resolved by the first half of 2021. The appreciation of the Thai baht (THB) will likely continue to hinder the recovery of the export sector. The appreciation of the Thai baht has been driven mainly by the declining value of the US dollar (USD) due to the US monetary and fiscal policies.
We believe two main forces will come into play in driving THB appreciation in the future. Firstly, the anticipated new round of economic relief measures will deepen the US government?s fiscal deficit. At the same time, it will likely result in a massive flow of USD liquidity into the market, pressuring the value of USD. Secondly, the higher growth potential in Asia will draw massive capital inflows to the region, driving up the demand for some popular Asian currencies, including the Thai baht.
We consider a recovery of the tourism sector to be highly uncertain under the current circumstances. Recoveries may vary from country to country depending on their capability to access and administer vaccines for their own citizens, as well as to the degree of economic damage inflicted by the pandemic, deteriorating personal income, and life securities. However, the ongoing rollouts of vaccinations in more than 90 countries have helped cultivate some positive sentiment for the recovery of the tourism sector. We forecast the number of foreign visitors to be three to four million in 2021 based on the scenario of the Thai government largely easing quarantine requirements in the fourth quarter of 2021 for visitors from countries of low infection rates, with satisfactory results of vaccinations.