What the new wave of Covid could mean
As we all know, the number of new Covid-19 cases in Thailand has skyrocketed after months of calm, breaking a single-day record last Saturday and causing authorities to issue urgent control measures, especially in Samut Sakhon.
As of yesterday, cases linked to the seafood market on Bangkok's southwestern fringe had been reported in 31 provinces, with particularly close attention being paid to nearby provinces and parts of the capital. Provinces nationwide have been categorised into four colour-coded tiers, but so far a total lockdown is in effect only in the lone "red" zone of Samut Sakhon.
If the outbreak spreads further and authorities are forced to impose a strict lockdown similar to what we experienced in April, what are the implications for Thailand's economy and investment?
SCBS has studied the experience of other countries that faced similar challenges to get a sense of what could happen. Excluding the outbreaks in January and February in China, it could be said that there have been three rounds of outbreaks in major countries across the world.
The first major wave was in the first week of April (except in some countries such as South Korea, where cases started to escalate in March).
In general, the number of new cases in the first seven days of April increased by 50-70% of the total prior to that time. This led to strict lockdowns in those countries as a result.
The second round came in August, as a result of the reopening of many economies in May and June after the worst of the first wave passed. In general, the ratio of new infections per day was much lower, at 10-20%. Thailand, however, did not face any problem, thanks in part of its effective Covid management.
This month, many countries have been experiencing a third wave that is the most severe yet, as temperatures drop and people spend more time indoors. The December outbreak in Thailand could be called a second wave, although the government does not like to use that term.
In the first round, social distancing and city shutdowns affected the global economy quite substantially because people, as well as authorities, were not prepared to shutter as much as two-thirds of all economic activities.
Governments and central banks responded with stimulus on an unprecedented scale, but it took time for the money to work its way through the system.
Major indicators such as retail and industrial production, as well as GDP, contracted sharply starting in April, but began to recover as the second quarter drew to a close.
By the time of the second outbreak, the authorities has measures in place to stimulate the economy. The private sector also had a better idea about how to limit the shock. As a result, the contraction rate of economic indicators in the second round was only about half that of the first. In the US and in South Korea, retail sales actually grew because of high stimulus-fuelled consumer spending power.
It is possible that even if the Thai government has to announce more stringent measures or further lockdowns, it could also announce additional stimulus measures to mitigate the impact on the economy.
If the control measures are severe, the Thai economy would shrink at the same rate we projected prior to the new outbreak, which is about 8% in the fourth quarter and 1% in the first quarter of 2021. The full-year-economic contraction would be 7% in 2020, with a recovery to growth of 3% in 2021.
Based what SCBS has observed in other markets, investment in the Thai stock market is likely to slow modestly, aside from the year-end holiday factor.
In the week after the second outbreak in Japan, South Korea and the US, we found the stock market dropped an average of 2.4% in the first week and gradually recovered in the following weeks.
One month after the second outbreak, major indices in those countries were back above the point reached before the outbreak. This was the result of both stimulus measures and the curtailment of economic activities that reduced the severity of the outbreak.
This has led us to conclude that although the SET index could tend to decline in the first week following the new outbreak (in which there is an opportunity to buy), in the near future it probably will rise. This is because overall, short-term global investment sentiment is still positive.
Despite the hiccup in the passage of a new US stimulus package, from which President Trump is demanding bigger payments to individuals, overall global economic and investment factors are moderately positive.
The roll-out of long-awaited vaccines is helping sentiment, as is continued loose monetary policy and the prospect of new initiatives in the US once Joe Biden assumes the presidency next month.
In Thailand, even if Bangkok has to be locked down again, the Finance Ministry has said it has more ammunition left in the fiscal 2021 budget if needed.
In terms of sectors, services such as hotels, retail groups and airlines will of course be greatly affected by any lockdown. Land and rail transport groups and banking groups may be moderately affected, while sectors such as building materials, real estate and communication may not severely affected if the lockdown does not last too long.
Hence, we maintain the same view as we did prior to the new outbreak, that the economic and investment situation globally and in Thailand will probably continue to improve in the first half of next year due to positive factors.
Nevertheless, in the second half of the year, it is possible that risk factors such as politics in the US, delayed European fiscal measures could create pressure, as could domestic factors such as the stronger baht and the contraction in exports and tourism.
In short, the second round of Covid will not have much impact on the economy and investment in the near term. But in the more distant future, Thai investors must keep an eye on other global and domestic risk factors.
Piyasak Manason is senior vice-president and head of the wealth research department at SCB Securities, email email@example.com