Thailand's economy has been mired in a contraction for five consecutive quarters, starting with a 1.8% dip in the first quarter of 2020 followed by an alarming 12.2% nosedive in the second quarter.
The bleak ambiance at Chatuchak weekend market earlier this month during the third wave of the pandemic. Apichit Jinakul
The contraction was less severe at only 6.4% in the third quarter, shrinking to 4.2% in the final quarter and only 2.6% in this year's first quarter.
The headline inflation rate gauged by the consumer price index (CPI) also rose by 3.41% year-on-year in April to reach the highest level in eight years and four months.
These two trends have prompted some economists to recall the spectre of stagflation, a rare combination of slow economic growth and relatively high unemployment -- or economic stagnation -- coinciding with rising prices (inflation).
Stagflation is mostly associated with the 1970s, during which many developed economies experienced rapid inflation and high unemployment as a result of the oil crisis.
Conceptually, stagflation is a contradiction as slow economic growth would likely lead to an increase in unemployment but should not result in rising prices.
Though most economists are not yet alarmed, stagflation is a serious enough phenomenon to consider given the current trends, with the country is effectively sealed off by a spate of risks brought about by the pandemic.
Limited risk
Pipat Luengnaruemitchai, chief economist at KKP Research, a research house under Kiatnakin Phatra Financial Group, warns that the conditions for stagflation in Thailand are present in certain areas, particularly with respect to rising commodity prices.
For example, higher oil prices would affect local logistics and related sectors such as cooking gas, eventually resulting in higher food prices, said Mr Pipat. However, such an impact would be limited amid the economic doldrums, he said.
"Global economies have faced demand-pull inflation because of higher demand amid lower supply after the reopening of several economies. It will take a while for demand and supply to balance, then the situation will normalise," Mr Pipat said.
Phacharaphot Nuntramas, the chief economist at Krungthai Compass, a research house under Krungthai Bank, said headline CPI rose significantly last month despite the country's economic downturn, while global economies recorded a higher inflation rate amid an economic recovery.
"Based on such conditions, the Thai economy is heading towards technical stagflation in some categories, especially energy-related areas in line with rising fuel prices," he said.
Mr Phacharaphot said the technical stagflation has led to restrictions among some groups of individuals and businesses. For example, Grab taxi drivers will face higher oil prices and those higher costs cannot easily be passed on to consumers through increased fares, leading to a narrower income margin for the drivers.
However, not everyone will be affected, he said.
"A mismatch between supply and demand in a global economic recovery is a key factor leading to higher inflation rates across the world. This condition should gradually normalise. We don't think Thailand will face stagflation conditions this year," Mr Phacharaphot said.
Headline inflation is projected at 1.2% for 2021 according to the central bank's latest monetary report, mainly attributed to the higher price of crude oil. Nutthawat Wicheanbut
Slim chance
Chayawadee Chai-Anant, senior director of the economic and policy department at the Bank of Thailand, said the likelihood Thailand will experience stagflation is very small.
The surge in headline inflation in April was largely driven by the higher price of crude oil and the low-base effect as government subsidies for utility bills were authorised in April 2020, she said.
The Commerce Ministry reported on May 5 the CPI, a gauge of headline inflation, rose in April for the first time since March 2020. It reached the highest level in eight years and four months, propelled by higher oil and food prices as well as the expiry of government subsidies on utility bills.
Headline inflation increased by 3.41% year-on-year in April after a contraction of 0.08% in March, the lowest rate in 13 months.
Some of the hike was attributed to high prices for specific agricultural products such as pork, fresh fruit and vegetables as a result of supply shortages.
On a monthly basis, the CPI rose by 1.38% from March.
Core CPI, which excludes raw food and energy prices, rose 0.3% year-on-year in April and 0.14% month-on-month.
For the first four months this year, average headline inflation was 0.43% year-on-year and core inflation 0.16%.
According to Ms Chayawadee, the central bank forecasts the higher inflation rate is a temporary condition.
For the medium term, the central bank expects the headline inflation rate to move in the low range of its rate target and remain anchored within that target.
"Other goods and service prices could not increase much because of people's weak purchasing power during the pandemic," she said.
According to the central bank's latest monetary report, headline inflation is projected to be 1.2% in 2021 and 1% in 2022.
The rise in headline inflation this year is attributed to supply-side factors, namely the increase in Dubai crude oil prices to an average of US$60 per barrel.
Headline inflation is expected to spike temporarily in the second quarter this year because of the low-base effect, as Dubai crude was about $30 per barrel during the same period last year.
Core inflation projections were largely unchanged at 0.3% in 2021 and 0.4% in 2022, according to the central bank.
As for 2022, inflation is expected to remain close to the lower end of the central bank's target range. Yet economic and inflation forecasts going forward remain highly uncertain and could underperform the baseline projection, said Ms Chayawadee.
Phusit Ratanakul Sereroengrit, director-general of the Trade Policy and Strategy Office, also sees little risk of stagflation at this time.
Given the latest Thai economic figures, both overall and by sector, the trends suggest the economy is starting to recover, he said.
"The higher inflation rate remains in the Commerce Ministry's target framework and there is little opportunity for it to exceed the target," said Mr Phusit.
"The main factor affecting the Thai economy is the pandemic, which is expected to ease once vaccine distribution expands nationwide, building up consumer confidence and reviving the service and manufacturing sectors."
He said the Commerce Ministry and related agencies have been closely monitoring the economy while pledging to roll out measures to support the recovery and lessen the living costs of Thais.
"During the pandemic, economies everywhere have faced a slowdown, especially services and related manufacturing activities. This is the main reason Thailand's GDP contracted for five consecutive quarters," said Mr Phusit.
"However, if we consider indicators from each sector, there are some signals of a recovery in the finance, construction, investment, production, agriculture, industry and export segments. The unemployment rate also remains manageable, while farm income continues to expand and the public debt-to-GDP ratio has yet to exceed the government's 60% ceiling for fiscal sustainability. And the real interest rate remains positive."
People peruse goods on sale at Sampheng market in Bangkok. Apichart Jinakul
No guarantees
Danucha Pichayanan, secretary-general of the National Economic and Social Development Council (NESDC), said the agency has been monitoring Thai economic conditions and the impact of the pandemic, but has yet to find any signs of stagflation.
"However, the agency cannot give a 100% guarantee stagflation will not occur in Thailand," he said.
The NESDC projected the headline inflation rate would be 1-2% this year, driven largely by a rise in commodity products, particularly oil.
This year's projection is based on Dubai crude oil prices being in a range of $56-68 per barrel.
Mr Danucha said the agency forecasts Thai economic activities to start improving in July, helped by a strong recovery in exports, more domestic tourism as well as foreign arrivals, which could exceed its latest projection of 500,000 for this year.
He said the agency needs to monitor the economy in the second and third quarters, but it advises the government to speed up disbursement to 80-90% of the 1-trillion-baht emergency loan, which includes the third phase of the co-payment subsidy and shopping stimulus measures worth a combined 140 billion baht.
The two schemes are scheduled to be implemented between July and December.
Mr Danucha said new stimulus measures would be instrumental in pushing Thai economic growth to exceed the NESDC's latest projection of 1.5-2.5% this year.
Somjai Phagaphasvivat, an independent political and economic analyst, said stagflation is unlikely to occur in Thailand now, but urged responsible parties to stay alert for a surge in inflation, evaluating whether the rise is temporary.
"Leaving inflation rates to rise freely over the long term will hit the overall economy hard," he said.
Thanavath Phonvichai, president of the University of the Thai Chamber of Commerce, said the possibility of stagflation is tiny and he feels upbeat that the economy will bounce back to positive growth this year.
"Stagflation conditions stem from sluggish economic growth because of low economic potential," he said.
"But for Thailand, the low economic growth is largely a consequence of the serious impact of Covid-19 outbreaks, not because of lower economic potential. Thailand's headline inflation has stayed relatively low and is estimated at only 1-2% this year."
According to Mr Thanavath, Thailand can expect to see a healthy recovery in economic growth in the fourth quarter once mass inoculations are carried out nationwide, while a myriad of stimulus measures should start to bear fruit by this time and the government is expected to reopen the country to tourists.
The government expects the Phuket sandbox tourism scheme to attract up to 1 million visitors in this year's fourth quarter, he said.
Siam Square in Bangkok's Pathumwan district appears desolate as most people avoid public places during the pandemic.Chanat Katanyu
Keep your eyes peeled
Visakorn Kirivan, an assistant vice-president and global investment strategist at KTBST Securities (Thailand), said the country is unlikely to face stagflation because the nation's economic woes are a result of the pandemic and lockdown measures, not poor core economic fundamentals.
However, the situation requires monitoring, said Mr Visakorn.
If inflation and the unemployment rate continue to rise for an extended period, the economy could see stagflation akin to past economic disasters, such as in 1997.
If inflation contracts in a certain year, the rate has typically recovered the following year. The global economy recorded a sharp rise in inflation rates this year, correcting for the drop in inflation in 2020, he said.
The rise of inflation rates this year was also driven by stimulus programmes intended to inject money into the economy and quantitative easing policies by central banks, especially in the US, said Mr Visakorn.
Although the pandemic forced governments to impose lockdowns, some employees could still work from home, unlike in the past when people were laid off during an economic recession.
The economy is also likely to recover from the second half this year, thanks to the ramping up of vaccine rollouts, he said.
The US inflation rate rose 4.2% in April and is expected to peak next month. This was partly because of a surge in oil prices to $62 per barrel, from about $30 per barrel in April 2020, as well as iron and copper prices skyrocketing this year.
The US used car market, especially mini-trucks, saw prices increase 10% in April, suggesting people are starting to buy back cars or used vehicles to prepare for the expansion of their businesses.
According to KTBST's analysis, several factors including the improving US employment rate suggest stagflation will not occur this year.
Global stock markets are also expected to recover this year, said Mr Visakorn.
KTBST recommends investors gradually accumulate stocks starting from next month as it believes the global economy is close to its lowest point in the economic cycle and is ready for a rebound.