Siam Commercial Bank's Economic Intelligence Center (EIC) has revised its growth forecast for the Thai economy this year down to 1.9% from 2.0%.
The move takes into consideration its downward revision of tourist arrivals and the impact of a longer than expected domestic Covid-19 outbreak, as well as support from robust exports and government measures.
Yunyong Thaicharoen, the centre's chief economist, said on Tuesday the EIC projects the Thai economy to grow by 1.9% in 2021 because of the resurgence of the virus, which it does not expect will be contained until at least July.
This continued outbreak will cause private consumption, especially for face-to-face activities, to significantly decline, said the EIC.
Regarding tourism, the EIC lowered its projection for foreign tourist arrivals in 2021 to 400,000, down from 1.5 million.
Despite Thailand's relaxation of lockdown measures as it hopes to attract more foreign tourists, many countries are still imposing strict travel restrictions to curb new virus variants.
He said the economic growth downgrade was minimal because of a robust export expansion in line with the global economic recovery, especially among developed economies with advanced vaccination rates.
In the first four months of 2021, Thai exports excluding gold expanded 12.8% year-on-year. For the rest of the year, accelerating global growth, particularly among developed countries, coupled with thriving prices of export products as commodity prices rise should improve shipments, said Mr Yunyong, especially from May to July when there was a low base.
Given these factors, the EIC increased Thailand's export growth outlook to 15% this year from 8.6%.
Another important factor in the economic growth projection is government support, including a 240-billion-baht loan as part of the 1-trillion-baht decree and a projected additional 100 billion baht under the newly launched 500-billion-baht decree.
The government recently initiated a 500-billion-baht loan decree with a budget lasting until next year.
The EIC expects the government may inject another 100 billion baht from this new budget decree in 2021.
Mr Yunyong said the 500 billion baht in extra borrowing by the government is acceptable in theory, but in practice it should be disbursed cost-effectively to build confidence and reduce scarring effects on the economy in the short term.
Prudent moves include accelerating vaccine procurement and distribution, supporting people and small businesses affected by the pandemic and promoting employment, he said.
The EIC projects the Thai economy to gradually recover to pre-Covid levels by early 2023, but it still faces downside risks from a long containment timeline and slow vaccination progress, which could make an economic recovery fragile and delayed.
The EIC also increased its 2021 global economic growth projection to 5.8% from 5.6%.
The global recovery is being driven by the easing of lockdown measures in developed economies after rapid vaccinations, along with sizeable and continuous fiscal support.
On the domestic front, economic damage from the third wave of Covid-19 cases could be larger than expected.
Even though the government has avoided strict lockdown measures to limit the economic harm, the virus spread has caused residents to become more cautious regarding travel and decreased their economic activities, said Mr Yunyong.
"In our previous forecast, the EIC projected containment of the third wave outbreak could take up to three months. However, the situation recently worsened as cases continue to increase and new clusters emerge," he said.
We now expect this round of infections may take up to four months to contain and cost around 310 billion baht in economic damage to private consumption, including losses from declining domestic tourism."
Government fiscal support, with both on-budget and off-budget financing, will play a crucial role in shoring up economic growth in 2021, said Mr Yunyong.
Regarding on-budget financing, the EIC expects investments in construction to expand 9.6% from multiple construction projects.
He said fiscal measures will be vital in limiting the impact of the third wave on private consumption.
The centre expects the central bank to hold a steady policy rate of 0.5% for the remainder of 2021 in addition to purchasing government bonds in the secondary market as necessary to keep interest rates in the financial markets at a low level and support an economic recovery.
The rising public debt remains manageable, though it is likely to increase beyond the threshold of 60% of GDP next year as government bond yields remain low, which would limit the interest-servicing costs for the government revenue ratio, said Mr Yunyong.