Despite relatively effective containment of Covid-19, the impact of the pandemic on Thailand's economy has been more severe than expected and economic recovery remains elusive, with annual GDP poised to shrink by 8%, says the Asian Development Bank (ADB).
The latest projection is a big dip from the bank's April forecast of a 4.8% contraction, according to a report titled "Asian Development Outlook 2020 Update: Wellness in Worrying Times".
External demand weakness is likely to continue in the near term, the report said. Even with trade partners gradually recovering as the Covid-19 situation allows them to relax containment measures, economic activity is projected to remain significantly below pre-pandemic norms in many countries.
Thailand's earnings from exports of goods and services are now projected to contract more deeply in dollar terms, by 22.3% in 2020, then rebound to 7.6% growth in 2021, according to the ADB.
The deeper export contraction will weigh on private consumption and investment. Private investment is now expected to contract by 12.1% in 2020, then recover with 4% growth next year, the ADB said.
Weak demand at home and abroad, excess production capacity and persistent uncertainty about the course of the pandemic will undermine business confidence and hamper investment this year, said the Manila-based lender.
"Investment to produce automobiles, machinery and equipment is unlikely to expand as long as consumers continue to stay away from durable goods," the report said. "Hotel, restaurant and transportation services will continue to suffer as economic activity languishes, even with more relaxed lockdown measures."
Domestically, a second wave of Covid-19 could trigger another round of lockdowns and disruption of economic activities, the ADB said.
"The rising risk of businesses and households defaulting on loans could undermine the outlook for private consumption and investment," the report said. "Recovery in tourism may be delayed by slow progress in reopening the country to international tourists. Finally, heightened domestic political tensions could further unsettle an economy already struggling to cope with the impacts of the Covid-19 pandemic."
Public spending seems to be almost the sole economic driver this year.
Public consumption is now expected to expand by 3.8%, revised up from 2.4% projected in April, due to speedy disbursement of relief spending, the ADB said.
Meanwhile, public investment is predicted to expand, especially in infrastructure projects for state-owned enterprises, and this will be the key to sustaining the economy to the forecast horizon, the bank said.
"The outlook for the Thai economy depends largely on the Covid-19 situation globally and regionally," the report said. "It will underperform the projection if the global economy recovers more slowly than anticipated. Worsening global trade protectionism or heightened geopolitical tensions could disrupt supply chains and price stability."
The ADB forecasts Thailand's GDP to grow by 4.5% in 2021.
