Analysts downgrade Thailand growth forecast due to virus

Analysts downgraded their forecasts for Thailand's 2020 growth in early February, with the novel coronavirus expected to take a toll on the country's tourism industry during the first quarter.

In a Feb 3 report, Citi economist Nalin Chutchotitham revised her 2020 forecast to 2.2 per cent, down from 3 per cent previously. Her 2019 forecast was lowered to 2.4 per cent, from 2.6 per cent previously.

Separately, Oxford Economics economist Sian Fenner downgraded her 2020 forecast to 2 per cent, down from 2.7 per cent previously. Risks are to the downside, given the high level of uncertainty over virus containment, she added.

The Citi forecast takes into account the China government's ban on outbound tour groups amid the coronavirus outbreak, as well as the impact of a severe drought and further delays of the FY2020 budget.

China accounts for about 30 per cent of Thailand's visitor arrivals, of which some 70 per cent are group tours. The virus, which originated in Wuhan in China, may subtract 1 percentage point from Thailand's growth due to reduced tourism revenues, said Ms Nalin.

However, the fall in tourist spending might be offset slightly by reduced outbound travel by Thai residents, she noted. A 5 to 10 per cent decline in outbound travel could add 0.13 to 0.25 percentage points to growth.

Ms Fenner expects the impact of the virus to be felt mainly in the first quarter, with weaker tourism also weighing on employment, retail sales, and household consumption.

Both economists expect some bounce-back in tourism in the second half of the year.

Tourism aside, a fall in agricultural output due to drought may shave off another 0.1 percentage point from growth, said Ms Nalin. "The knock-on impact for agriculture exports, rural household income, and consumption are also non-negligible," she added.

With the budget no longer expected to be effective mid-February, the growth contribution from public spending could be 0.2 percentage points lower, she added.

But when the budget does arrive, it could bring more support. Ms Fenner expects further support for households and the tourism sectors. Measures in 2019's fiscal stimulus package, such as rebates for domestic tourism, could be extended beyond their April expiry date.