Research houses concur on heavy toll

Research houses concur on heavy toll

Forecasts for full-year economic contraction range from 4.8% to 5.6%

Siam Square in Bangkok is nearly empty as the Thai economy's 2020 prospects grow bleaker.
Siam Square in Bangkok is nearly empty as the Thai economy's 2020 prospects grow bleaker.

The Thai economy is forecast to shrink by 4.8% by Asian Development Bank (ADB), 5.6% by Siam Commercial Bank's Economic Intelligence Center (EIC) and 5% by Standard Chartered Bank (Thai), heading for its deepest contraction since the financial meltdown of 1998.

ADB predicts GDP to contract by 4.8% in 2020 before recovering to 2.5% in 2021, the bank said in a recent report.

Exports of goods and services are projected to continue to decline this year, mainly due to the coronavirus outbreak, before turning around next year. The impact of the virus on merchandise exports is likely to become clearer in the second quarter of 2020.

Some exports such as electronics, automobiles and chemical products are likely to suffer hits from supply chain disruptions in mainland China, while other exports -- notably metal products, machinery and equipment -- could gain from trade diversion, though probably not enough to offset the impact from supply chain disruption.

Exports of services are also expected to decline in 2020 with a significant drop in foreign tourist arrivals but will rebound in 2021 as they return, the Manila-based lender said.

Rising private consumption is expected to slow in 2020 as growth in household income weakens, while private investment growth is projected to be negative as external demand continues to decline and business sentiment is sapped by concerns over the pandemic.

Traction in private investment should return next year as some public-private partnership and public investment projects that were postponed in 2019 and 2020 finally begin implementation.

Fiscal and monetary policies are expected to remain accommodative this year and next.

Given the months-delayed fiscal 2020 budget after the lengthy formation of a coalition government, any boost from the planned increase in expenditure is heavily weighted towards the latter half of the fiscal year.

As the policy interest rate is already low, the central bank may consider using other measures jointly with monetary policy, ADB said.

In February and March, the central bank cut its policy rate by a further 50 basis points in total to 0.75% in response to the outbreak, delays in budget implementation and the severe drought.

"Risks to the outlook tilt to the downside," ADB said. "The major external risks are a deeper contraction in global economic growth and any reheating of the trade conflict between the US and China.

"The impact of Covid-19 will depend on how quickly it can be brought under control. Knock-on impacts from a likely slowdown in inbound tourism could dent economic confidence within the country for many months. Purely domestic risks to growth could arise from delays in implementing the fiscal 2020 budget or infrastructure investment projects, or from prolonged drought."

The EIC forecasts a contraction of 5.6%, deeper than the 0.3% previously predicted, citing the global economic downturn stemming from a sudden stop in economic activities, a sharp decline in the number of foreign tourist arrivals and a longer-than-expected recovery in the tourism industry, and a lockdown in many areas of Thailand.

The downgrade assumes that the government will splash an additional 200 billion baht from the royal decree on borrowing, the EIC said.

"The timing of the tourism recovery is difficult to predict, but we expect it to be delayed beyond the second quarter," Standard Chartered Bank said.

The bank predicts two further policy rate cuts of 25 basis points each in the second and third quarters, taking the rate to a record low of 0.25% at the end of 2020.

"Cutting rates close to zero would also risk weakening the baht further, and this might concern the central bank given the risk of capital outflows," Standard Chartered said. "In this context, we believe fiscal policy needs to do more of the heavy lifting to support the economy and avoid the need for zero or negative rates."

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