External climate, border reopening key to Thailand's economic recovery: reports

THAILAND'S economy shrank by 6.1 per cent in 2020, according to figures out on Monday - its worst showing since the Asian financial crisis in 1998.

External weakness was a lead weight on the gross domestic product (GDP), as exports fell by a record 18.8 per cent year on year, mainly in services.

To be sure, support came from domestic demand and private consumption, on the back of stimulus measures such as a domestic tourism package.

As such, more fiscal support will be needed to support the recovery in Thailand, said Maybank Kim Eng economists Lee Ju Ye and Chua Hak Bin, while adding that the central bank has less wiggle room with a monetary policy rate of 0.5 per cent in 2021.

But public debt already stood at 52.1 per cent of the Thai GDP as at end-2020. While a 210 billion baht (S$9.3 billion) cash transfer exercise is set for the first three months of 2021, it is uncertain how many more such transfers the government can sustain, analysts noted.

Gross fixed capital formation, a measure of foreign investment, was also down by 4.8 per cent for the full year, although Barnabas Gan, economist at UOB, pointed out that the absolute value of 644 billion baht in the fourth quarter of 2020 indicates a return of investor confidence.

Both Maybank KE and UOB have projected economic growth of 3.5 per cent in 2021 - on the upper end of the official forecast.

Still, downside risks include delayed Covid-19 vaccination and a hold-up in border reopening, Ms Lee and Dr Chua wrote.

Similarly, Mr Gan called the economy "very dependent on both tourism and trade", and added that a worsening Covid-19 outbreak or trade headwinds "would inject downside risks to Thailand's growth momentum in 2021" too.

Tourism, which makes up one-fifth of the economy and the workforce, is also seen as critical to the economic outlook. Fitch Solutions analysts had warned on Feb 12 that the tourism sector "will struggle to post any recovery until late 2021", as virus control comes with closed borders.

Said Mr Gan: "Growth outlook for Thailand in 2021 will depend on three key factors: Covid-19 environment, domestic political situation and global trade backdrop."