The Bank of Thailand is poised to lower its 3.2% growth forecast for Thailand this year against the backdrop of increasing downside risks stemming from the persistent Covid-19 outbreak.
Although the central bank’s Monetary Policy Committee (MPC) assesses that the impact of the recent outbreak on Thailand’s economy would be less severe than last year because containment measures are not as stringent, the economy is expected “to expand somewhat lower than the previous forecast”, said MPC secretary Titanun Mallikamas.
Foreign tourist arrivals for this year are also expected to be lower than the existing projection, said Mr Titanun.
He did not elaborate on the MPC downgrades to this year’s GDP growth outlook and foreign tourist arrivals.
The Bank of Thailand estimates the Thai economy to expand by 3.2% this year, rising to 4.8% in 2022. The central bank anticipates foreign tourist arrivals of 5.5 million in 2021.
A potential downgrade aligns with the latest outlook of the Finance Ministry's Fiscal Policy Office (FPO), which slashed its economic growth forecast to 2.8% this year from 4.5% as foreign tourist arrivals are likely to be substantially lower given the second wave of the pandemic.
“Economic recovery prospects remain highly uncertain, depending in the short term on containing the outbreak,” said Mr Titanun.
On a longer horizon, the recovery momentum would depend on the recovery in foreign tourist figures, efficacy and coverage of Covid-19 vaccinations, continued sufficient fiscal support, and the labour market situation, which became more fragile as the numbers of unemployed and underemployed workers have risen in the short term, he said.
Mr Titanun said the MPC views continued government measures and policy coordination among government agencies as critical to support the economic recovery going forward.
“Fiscal measures must continue to sustain the economy. In particular, the government should expedite budget disbursement under the restoration plan once the new wave of the outbreak is contained,” he said.
The MPC voted unanimously yesterday to maintain the one-day repurchase rate at 0.5% to lend support for the domestic economic recovery.
The seven-member rate-setting panel cut the benchmark interest rate three times in 2020, with a 25-basis-point reduction each time to an all-time low of 0.5% to mitigate the adverse effects from the pandemic.
While the fresh wave of Covid-19 and virus containment measures affect the Thai economy in the short term, a recovery is still on track thanks to government measures and an export rebound, said Mr Titanun.
"We expect the MPC to keep the policy rate unchanged at 0.5% throughout 2021 given limited monetary policy space, but we see a policy bias towards further rate cuts," said Tim Leelahaphan, economist at Standard Chartered Bank (Thai).
"The current economic situation does not warrant a further rate cut yet, in our view."