Economic fire continues to rage

Economic fire continues to rage

The struggles and successes amid the pandemic may be permanent.

The 'yak' (giant) statue at Suvarnabhumi airport wears a face mask as part of the campaign to encourage mask wearing and the observation of social distancing to prevent infection. (Photo by Wichan Charoenkiatpakul)
The 'yak' (giant) statue at Suvarnabhumi airport wears a face mask as part of the campaign to encourage mask wearing and the observation of social distancing to prevent infection. (Photo by Wichan Charoenkiatpakul)

Fighting the pandemic and keeping the ailing economy going have been almost insurmountable tasks for Thailand this year. The Bank of Thailand has forecast a GDP contraction of 7.8% in 2020, crucially weighed down by the outbreak.

After wading through the first lockdown and fending off new local infections for months, a sudden spike in new infections this week is expected to drag businesses back towards the circling the drain, where many are likely to be gutted by the outbreak, and a lucky handful will manage to reap windfalls.

WOEFUL EFFECTS

LOCK-UP DOOM

The freeze on international flights for nine months has delivered bitter times to the tourism industry in Thailand.

According to the Tourism Authority of Thailand, the country is likely to close the year with merely 6.7 million international tourists -- the same number prior to the outbreak -- despite the government's attempts to enable entry schemes for foreigners via Special Tourist Visas (STVs).

With a second wave of outbreaks in many countries, particularly during the winter months, triggering new rounds of lockdown, Thailand may have to wait longer -- until the second half of next year -- to see more visitors file back into the country.

While the TAT previously expected the domestic market would reach 100 million trips this year, the recent spike in local cases led the agency to revise down the target to 95 million trips, a result of the partial lockdown in some provinces.

The International Air Transport Association (IATA) revised the global outlook in terms of passenger demand for this year down sharply, representing a 60.5% decline year-on-year to 1.8 billion passengers compared with 4.5 billion passengers last year.

The overall load factor is estimated to close at 65.5%, a level last seen in 1993, down sharply from the 82.5% recorded in 2019.

To sum up, the aviation industry is expected to suffer a total net loss of US$118.5 billion this year, which is more severe than the previous forecast in June of $84.3 billion.

As air passenger traffic slumped heavily due to tight travel restrictions, curtailing flying, a domino effect was seen in the hospitality segment from the lack of demand.

"Hotel supply in the country was built up for foreign visitors, so hoteliers are inevitably taking a massive blow from tourist losses this year," said Marisa Sukosol Nunbhakdi, president of the Thai Hotels Association (THA).

Even though 75% of hotels that are members of the THA have partially reopened (except for hotels in Phuket and Koh Samui which heavily rely on the international market), most hotels are not able to reach break-even point.

As the situation stands, hoteliers have to continue with stringent cost-saving measures to stay afloat for the foreseeable future.

She estimated that the overall occupancy rate for legal hotels will close at 40-45% this year, attributed to activity in the first three months of the year, before the borders closed. This rate represents a sharp decline from 60-65% -- the level it stood at prior to the pandemic.

PROPERTY CRUMBLING

The pandemic has further suffocated the sluggish property market, which has slowed since last year due to lending curbs, high household debt and a weak economy, with consecutive drops in supply, demand and prices.

The Real Estate Information Center (REIC) forecast a drop of 27.3% in new residential supply launched in Greater Bangkok to 71,467 units in 2020, down from 98,248 units in 2019 and 121,470 units in 2018. The largest contraction of 50% is within the condo segment.

An indication of this setback appeared in the first nine months as newly launched supply in the Greater Bangkok declined 20.9% when compared with the same period last year to 50,781 units worth a combined 228.95 billion baht.

The biggest drop was in the condo segment with a sharp fall of 41.8% to 20,089 units.

The centre's acting director-general Vichai Viratkapan said the economic slowdown that started last year had caused a decline in new supply launched this year, with a nosedive in the condo segment as supply over two consecutive years accumulated and demand from foreign buyers softened.

"Many developers shifted to low-rise houses as demand for them was stronger. They wanted to clear out condo inventories and cash in amid uncertainties from the outbreak," said Mr Virat.

Clearing condo inventories with heavy discounts and campaigns eventually led to a fall in condo prices this year.

The food delivery segment has seen growth of 19-21% this year, propelled by an influx of orders during lockdown. (Photo by Arnun Chonmahatrakool)

REIC reported a consecutive fall in the condo price index in the third quarter this year to 153.1, down 0.1% from the second quarter. That was the third consecutive quarterly decrease as developers stuck to campaigns and discounts to boost sales.

"The outbreak affected real demand, investment buyers and foreign buyers in the condo market. As a result, the unsold condo supply was higher than demand," he said.

With negative factors including the loan-to-value limits, high household debt and the economic slowdown carried over from last year, residential demand nationwide this year will see a drop of 10.3% in residential transfers to 351,636 units, according to REIC.

Transfer value will also decline by 7.3% to 862.5 billion baht from 930.75 billion baht in 2019, having peaked at 935.29 billion baht in 2018, REIC estimated.

OIL PRICES IN CRISIS

The pandemic caused an unprecedented plunge in oil prices into negative territory in April, but the collapse in the oil price fuelled developments in the liquefied natural gas (LNG) shipping business.

In the first week of April 2020, West Texas Intermediate benchmark dramatically fell to $37.63 per barrel for the first time in history due to weak oil demand and the failure of global oil producers to control production resulting in an oversupply. The reference price in Dubai for Asia also dropped to $20 per barrel.

The weak global oil market was brought about by waning oil demand as the pandemic forced people to travel less.

The Organisation of Petroleum Exporter Countries (Opec) and its allies were unsuccessful in cutting production at the time.

The Thai oil market also tumbled, with demand for jet fuel dramatically dropping by up to 90%.

Oil consumption for vehicles also decreased by 30-50% within weeks after governments in Asia restricted air and land travel.

PTT, the national oil and gas conglomerate, had to cut investment by 15% after booking quarterly losses due to a sharp drop in oil prices and weak demand.

The state-owned firm reported losses of 1.55 billion baht in the first quarter (ending in March), the first loss in four years, contrasting sharply with the 29.3 billion baht profit recorded in the same period a year earlier.

Yet the situation is not all bad in the energy sector.

The Thai government considered opening the LNG market in 2015 but made little progress until earlier this year when LNG prices declined below $3 per million British thermal units, thanks to the collapse of oil prices.

According to the national gas plan, the country will import LNG at more than 24 million tonnes a year by 2027 as gas resources in the Gulf of Thailand and the Gulf of Martaban are en route to depletion in the near future.

PTT has held a monopoly in LNG shipping since 2011. The Electricity Generating Authority of Thailand entered the market after being granted a shipping licence last year.

This year alone three other firms -- Ratch Group, B.Grimm Power, Gulf Energy Development -- were granted licences.

ENGINES OFF

The impact on the automotive industry was so severe, the pandemic is viewed as a "destroyer" of the car business, said Surapong Paisitpatanapong, vice-chairman and spokesman for the Federation of Thai Industries (FTI)'s automotive club.

Car production and sales were halted in many countries where lockdown measures were enforced to contain the virus.

In Thailand, the automotive industry almost came to a standstill during the throes of the outbreak earlier this year when many factories had to be shut down temporarily, said Mr Surapong.

From January to November, car manufacturing in Thailand decreased by up to 31.69% year-on-year to 1.2 million units.

"FTI is stunned by the decrease, which was 40-50% more severe than expected earlier this year," said Mr Surapong.

FTI expects total car production in 2020 to reach only 1.4 million units, compared with around 2 million units in 2019. Of the total, 50% would be exported.

The real figures at the end of the year may be different, depending on whether Thailand faces a second outbreak.

Manufacturers are not the only ones to be affected by the pandemic, as it has also hit consumers' pocketbooks, resulting in them spending less on vehicles. The motorcycle market has faced similar challenges. Thai motorcycle production from January to November decreased by 21.41% year-on-year to 1.8 million units, according to FTI.

Mr Surapong said the club is concerned about the latest outbreak as it will make it harder for the automotive industry to get through the crisis after drudging through a slow recovery since the third quarter of this year.

INDUSTRIAL LOTTERY

The global pandemic stabbed at the economy in 2020, but some manufacturers took advantage of the outbreak and experienced a windfall.

The impact generally felt in the manufacturing sector is massive disruptions in global supply chains and diminishing production capacity utilisation, two aspects that are still struggling to recover.

In Thailand, capacity utilisation from January to October stood at only 60%, said Suriya Jungrungreangkit, the industry minister.

Industries such as garments and textiles as well as real estate and related businesses were particularly hamstrung, seeing as capacity utilisation had fallen below 50% prior to the effects of the pandemic.

The Industry Ministry expects the country's manufacturing production index (MPI) this year to decrease by 8% and GDP in the industry sector to drop by 7%.

The adversities are a side effect of lockdown measures which, without the availability of a vaccine, were the most powerful weapon against the spread of the coronavirus, even though it led to a temporary shutdown of factories, with many of the workers furloughed.

"The pandemic may change the economy forever as it will continue to impact businesses until vaccines are distributed to prevent the possibility of further outbreaks," said Supant Mongkolsuthree, chairman of the FTI.

Amid the challenges facing large parts of the economy, the medical equipment industry experienced positive momentum, particularly in the case of rubber glove manufacturers.

The rubber glove business will continue to expand, along with the growth in global demand, said Mr Suriya.

Global demand for protective gloves is soaring in light of a need to protect healthcare workers. The increase in demand boosted Thailand's rubber glove export value in 2020 by 16% year-on-year to $449 million, according to the Industry Ministry.

In 2019, Thailand produced more than 20 billion rubber gloves, with exports accounting for 89% of total production.

THE PANDEMIC WINDFALL

E-COMMERCE FLUSH

E-commerce has been thriving in 2020, driven by the pandemic and lockdown, which encouraged many people to shop online. Older demographics also joined the online shopping adventure and regular online shoppers became more engaged while experiencing lockdown.

The e-commerce sector incurred 81% growth year-on-year in 2020 and is been estimated to be worth $9 billion.

Thailand saw a huge number of new digital service users this year, especially during lockdown.

The e-Conomy SEA 2020 report indicates 30% of all digital service consumers in Thailand are new to the service, with 95% of these new consumers saying they would continue their online behaviours in the post-pandemic era.

The report was jointly conducted by Google, Temasek and Bain & Company.

Thailand is forecast to see an 81% year-on-year growth in the e-commerce sector to $9 billion in 2020, the report indicates.

As e-commerce has been pushed into a mainstream shopping channel for consumers, brands are paying a crucial attention to the sector, with many opening online stores on e-marketplaces. Brands are gearing towards the direct-to-consumer (D2C) strategy, in which they directly engage with customers.

Sales livestreaming is also on the rise, bolstering customer engagement. Brands are striving to gain customer insights and some turn to advertising agencies to help them map out e-commerce strategies.

Major department stores, supermarkets and even convenience stores, such as 7-Eleven, are diving into the e-commerce segment with promotions and promises of fast delivery to boost revenue from online channels and offset losses from physical ones.

Social media giants, such as Facebook and Instagram, have offered new features to support online merchants. Short-form video-sharing app TikTok came up with a "shop now" button on its platform linking users to advertisers' e-commerce websites from videos.

The growing e-commerce segment is also a boon for delivery services. Singapore-based logistics startup Ninja Van raised $279 million through its Series D funding round in 2020 while Flash Express, a local express delivery service, received Series D funding worth $100 million.

Kerry Express, another major delivery service provider, will become the first parcel delivery firm to launch an IPO on the Stock Exchange of Thailand on Dec 24.

Warehousing and fulfilment services as well as e-payment businesses are also catching the e-commerce wave.

FOOD DELIVERY GROWTH

Online food delivery service saw exponential growth in 2020, buoyed by the closure of restaurants and shops during the peak of the outbreak. The cut-off from diners prompted food vendors to sign up with food-ordering apps to ensure revenue streams.

Grab has expanded GrabFood services to 30 provinces while Get, the local food delivery unit of the Indonesian unicorn Gojek, consolidated and rebranded as Gojek Thailand.

Rumours also circulated that Grab and Gojek are in talks for a merger.

Foodpanda has expanded food delivery services to 77 provinces countrywide. Delivery app Line Man merged with Wongnai, a restaurant review platform, in September to boost its strength amid tough competition in the business.

Siam Commercial Bank (SCB) also taken a step into the business by unveiling the Robinhood food delivery app, offering a no gross profit (GP) policy (effectively a commission fee) to support small merchants.

Food delivery has so far been a loss-making business since it requires a huge subsidies from platforms in the form of promotional campaigns to attract users and competition in the segment is harsh.

In the near future, food delivery apps are expected to move on to a business-to-business strategy, such as sorting ingredients and sending them to restaurants.

Shared cooking spaces, known as cloud kitchens, are also anticipated to gain traction.

Kasikorn Research Center (K-Research) forecasts the number of food deliveries is projected to surge 78-84% year-on-year in 2020 since vendors rely more on food-ordering platforms to increase revenue even though they still face a GP fee of up to 35%.

K-Research has revised up the country's 2020 food delivery service outlook to a growth of 19-21% from 35 billion baht in 2019. The projection had been 17% initially.

The Office of Trade Competition Commission has recently announced a regulation to ward off unfair practices imposed by food delivery platforms on food vendors.

The regulation includes the prohibition of an increase in GP and advertising fees without reasonable grounds. Changes in the contract period without notification of at least 60 days was banned.

E-PAYMENTS BUSTLING

The novel coronavirus outbreak has accelerated digital banking transactions as social distancing measures and changes in consumer behaviour in the digital era steer cashless payment.

Internet and mobile banking accounts, cashless transactions and the volume of e-payments in the Thai banking sector surged significantly from Dec 2019 to Sept 2020.

Internet and mobile banking accounts numbered at 89.5 million in Dec 2019 before rising to 99.4 million in Sept 2020.

According to Bank of Thailand data, money transfers and payments via the internet and mobile banking platform during the period rose from 595.5 million transactions to 854.7 million transactions, while money transfer values increased from 5,109.3 baht per transaction on average to 5,541.8 baht per transaction.

Apart from changes in consumer behaviour in the digital era, the pandemic has encouraged people to conduct transactions via digital banking as part of social distancing measures to contain the outbreak, said Siritida Panomwon Na Ayudhya, assistant governor of the payment systems policy and financial technology group at the central.

E-payment usage per person per year continued to increase from 89 transactions in 2018 to 135 transactions in 2019, before rising to 180 transactions as of September 2020.

E-payment transactions have seen a surge in all channels, especially internet and mobile banking.

Payments via plastic cards also increased significantly in the restaurant, retail and hotel segments.

On the other hand, cash withdrawals via ATMs and the use of cheques have continued to trend downwards.

Robust growth in digital banking transactions came with mobile banking glitches, especially with the overflow in transactions at the end of every month, despite e-payment capacity expansion implemented on the part of banks.

Ms Siritida said banks need to further develop digital infrastructure to handle the higher transaction volumes in the digital age.

The Bank of Thailand is urging commercial banks to closely monitor financial transactions via mobile banking apps during the long holidays to prevent mobile banking glitches from happening.

The central bank, in collaboration with financial institutions, has prepared measures to contain risks related to mobile banking transaction errors.

According to the Bank of Thailand data, there were 12 mobile banking errors in the third quarter of 2020, compared with 13 instances in the second quarter.



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