CIMB Thai Bank (CIMBT) has offered a bleak outlook for the Thai economy, notably cutting its 2020 growth forecast to 2.3% based on the assumption the economy will expand below 2% in the first half because of the coronavirus epidemic and delayed fiscal budget.
Risks that the country's economy will grow below 2% in the first six months have increased, but the impact will be limited to the first half, said Amonthep Chawla, executive vice-president and head of research at CIMBT. A rapid pick-up is expected in the latter half, driving growth above 3% for that period.
The bank in December predicted economic growth of 2.7% in 2020.
If CIMBT's latest forecast holds true, the economy could expand at its slowest pace since 2015 when it grew 2.9%.
Don Nakornthab, senior director for economics and policy at the Bank of Thailand, warned last week that the economy would grow less than forecast, with the first quarter likely less than 2%, crippled by the deadly virus outbreak and the delayed fiscal budget.
While fiscal stimulus is constrained thanks to the delay in the annual budget bill for fiscal 2020, the Monetary Policy Committee could trim the policy rate by 50 basis points this year to a new historical low of 0.75%. That rate cut could begin at today's meeting, said Mr Amonthep.
The spreading coronavirus is expected to deal a larger blow to the economy than Sars or the H1N1 influenza epidemic as Chinese travellers now account for 30% compared with 7% at that time. Around 1 million Chinese tourists a month on average visit during January and February.
"Thailand is a major destination for Chinese travellers and would inevitably feel the pinch from tourism income contracting, resulting in a narrower current account surplus. Thai economic growth could be dampened, with hotels, restaurants, transport, retail, and food and beverage all taking a hit," he said.
"The Thai economy relies on tourism, which contributes around 10% of GDP. Thailand could get the shivers if this portion disappeared."
The baht, which was the best performing currency in Asia the past two years, is estimated to weaken to 32 against the US dollar in the second quarter before strengthening to 30.5 at year-end, Mr Amonthep forecast.
"Apart from a rate cut and the baht retreat helping the economy, there are few tools that can prevent growth from falling below 2%, the lowest in 21 quarters. The urgent focus is building up confidence among Thais and foreign tourists that the government can contain the coronavirus. Tourism income will dip in the short term, but confidence will help it rebound," he said.