Domestic headwinds hinder recovery

Domestic headwinds hinder recovery

The gloomy atmosphere at a massage service on Khaosan Road. Tourism-related businesses have been hurt by the pandemic.  Pornprom Satrabhaya
The gloomy atmosphere at a massage service on Khaosan Road. Tourism-related businesses have been hurt by the pandemic.  Pornprom Satrabhaya

Thailand's economy is projected to recover slowly because of downside risks from domestic headwinds despite upbeat signals about Covid-19 vaccine development, says KKP Research.

Although the economy gained traction in the third quarter, the economic recovery outlook remains fragile and uneven for different sectors and throughout Thailand, according to a report by KKP Research, the research unit under Kiatnakin Phatra Financial Group.

GDP contracted by 6.4% year-on-year in the third quarter. After seasonal adjustment, the economy expanded by 6.5% quarter-on-quarter.

Tourism businesses need to manage their liquidity, which could significantly affect unemployment and private consumption, said the report.

"Although the economic indicators may not be that bad, there is a high possibility hotels, particularly small ones that have gradually shut down operations, will lack sufficient liquidity to operate as foreign tourists may not return until the third or fourth quarters [of 2021]," said the report.

If foreign tourist arrivals are lower than expected, KKP Research projects this would considerably worsen economic conditions.

In addition to foregone losses in tourism revenue, upstream and downstream businesses associated with the tourism industry will have to shutter operations, subsequently causing a wide-scale impact on consumption and investment. This could cause GDP to expand by less than 1%, said the report.

The baht's strength could also impede the recovery of exports as the currency's value has appreciated compared to the movement of currencies of Thailand's competitors, said the report.

Exports have not reaped benefits from a recovery in tech products due to a low portion of shipments in this product category, unlike the windfall received by South Korea and Taiwan based on exports in this category.

Uncertainty over the domestic political situation adds to headwinds that will offset domestic demand and recovery momentum, said the report.

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