Fitch Ratings expects Thailand's economic recovery to gain traction in 2022, supported by a significant improvement in Covid-19 vaccination rates, business reopening and a still-supportive global growth environment.
The return of tourism is likely to be gradual, and Fitch expects GDP to recover to pre-pandemic levels by early 2023.
The ratings of most large Thai corporate debt issuers have stabilised, although some sectors, such as banks, retail and hospitality, remain under earnings pressure due to the pandemic, according to Fitch analysts who spoke at a recent annual conference on Thailand held via webinar.
Looking at the global economy, strong external demand should continue to support Thailand's exports, said Stephen Schwartz, senior director and head of Asia-Pacific Sovereigns at Fitch.
However, he noted that supply constraints are limiting the pace of global recovery and contributing to price rises in the United States. Fitch expects the US Federal Reserve to begin scaling back its stimulus next month, but for interest rate increases to begin only in 2023.
The regional outlook has been set back by a slowdown in China and the recent surge in the Delta Covid-19 variant. However, a significant improvement in vaccination rates for most Asian countries over the second half of 2021 should put their recovery from the pandemic shock on a firmer footing.
Fitch Ratings expects the region to average growth of 6.3% in 2021 and 5.3% in 2022 as pandemic-related restrictions are gradually lifted. This compares with forecast growth in Thailand of just 0.8% this year and 4.8% next year, though vaccination rates are picking up after a slow start. Slower growth in China, together with Fed tapering, could be negative for Asia's emerging and frontier markets.
Thai banks' asset quality remains obscured by ongoing regulatory measures; around 14% of commercial bank loans are under regulatory relief, and there is also forbearance on loan classifications, noted Parson Singha, senior director of financial institutions at Fitch Ratings Thailand.
Fitch expects the SME segment, which accounts for around 23% of loans, to remain under particular pressure from weak business and economic activity. The firm says non-performing loans will continue to rise and profitability will remain challenged in 2022, but Thai banks have built up reasonable reserves and capital buffers. Credit losses should remain manageable across Southeast Asian emerging markets, although loss absorption buffers differ by country.
Obboon Thirachit, director of corporate ratings at Fitch Ratings Thailand, said the recovery in the Thai economy should support continued earnings growth for domestic Fitch-rated corporate issuers in 2022. Most sectors, including oil, gas and petrochemicals -- which were hardest hit in 2020 -- are now on a Stable outlook, with earnings recovering to pre-pandemic levels.
The retail and hospitality sectors, which were heavily affected by the resurgence of Covid cases and travel restrictions in 2021, should see a gradual improvement in 2022, although a recovery to pre-pandemic levels could take another two years.
Thai corporates are stepping up their investment and mergers and acquisitions to support medium-term growth, digitisation and low-carbon business transformation. This will keep financial leverage elevated and constrain rating improvement, the firm cautioned.