Thailand's economic march towards regaining the levels reached in 2019 could be delayed if the Omicron variant has a huge impact and the pandemic is prolonged in the country, says the Bank of Thailand.
According to the minutes of the Monetary Policy Committee (MPC) meeting last month released on Wednesday, the MPC assessed that under a worst-case scenario the Omicron outbreak would be widespread despite efforts to accelerate vaccination rates.
This would create a strain on public health capacity in some areas and prompt the government to impose more stringent containment measures than in the bank's baseline scenario.
Under the baseline scenario, the central bank forecasts the Thai economy would recover to pre-pandemic levels by early 2023.
Consequently, economic activities would be directly affected in the first half of 2022 due to a dampening in confidence and domestic spending.
Furthermore, international travel restrictions among various countries would result in a sharp fall in the number of foreign tourist arrivals in the country. This could impede the recovery of the tourism sector which was a key growth driver, and would therefore delay the economic recovery to pre-pandemic levels relative to the baseline scenario.
Although under the baseline scenario, the Omicron outbreak would not derail the overall economic recovery, the outbreak situation remained highly uncertain and could have larger and more prolonged impacts than expected.
"The MPC assessed that Omicron spread was a key risk that could hinder the economic recovery going forward, and thus warranted close monitoring. This would depend on the severity of the outbreak and the strictness of the corresponding containment measures," according to the minutes of the MPC meeting.
However, the committee assessed that the Thai economy would continue to expand, despite the impacts of the Omicron outbreak on domestic spending, foreign tourist figures and merchandise exports in early 2022.
The committee also assessed under the baseline scenario that although the Omicron variant had a higher transmission rate than the previous variants, the efficacy of existing vaccines would help reduce the severity of the symptoms to some extent. The government was therefore expected to implement area-specific containment measures and suspend the Test & Go registration for foreign tourists only on a temporary basis.
As a result, the impact on foreign tourist figures in 2022 would be limited, as foreign tourist figures were previously forecast to begin accelerating only in the second half of 2022. The tourism sector would thus remain an important economic growth driver and would support the Thai economy to recover to pre-pandemic levels by early 2023.
The minutes reported that the country's labour markets would take a longer time to return to pre-pandemic levels than the recovery of overall economic activities. There was thus a need to monitor indicators that reflected the quality of the economic recovery.
In addition, the ongoing financial and fiscal measures, with a focus on rebuilding and enhancing potential growth, would play an important role in bolstering the robust recovery of incomes. The committee viewed that the government measures and policy coordination among government agencies would be critical to support the economic recovery.