Thai economy facing 'bleak' prospects in Q3 from stricter curbs, growing Covid-19 cases: analysts

THAILAND is set for a bumpy recovery ahead, with economists expecting the current third and most severe Covid-19 wave to further drag its third-quarter economic performance.

Second-quarter gross domestic product (GDP) rose 7.5 per cent year on year due to the low base in Q2 last year, when the economy shrank 12.1 per cent, said the National Economic and Social Development Council (NESDC) on Monday. This was led by gains in the manufacturing, accommodation and food service activities sectors.

Sequentially however, Q2 only grew 0.4 per cent, barely extending the previous quarter's gains of 0.2 per cent.

"We expect third-quarter GDP to be hit by the more stringent movement curbs, although the year-on-year growth may still be positive given the low base," said Maybank Kim Eng economists.

They are expecting Thailand's GDP to grow just 1.4 per cent in 2021, while Oxford Economics lead economist Sian Fenner is pencilling in a 2 per cent expansion.

"Prospects for Q3 are bleak as the government has imposed stricter social distancing measures in high-risk provinces and cities, including Bangkok, as new daily Covid-19 cases reached record highs in July," said Ms Fenner. "Containing the virulent Delta virus poses a significant downside risk to our forecasts."

Citi economist Nalin Chutchotitham is lowering her growth outlook to 0.9 per cent, from 1.8 per cent, despite the better-than-expected showing in Q2. "We had priced in two months of lockdown in the previous forecast, but now expect the current restrictions to be extended to end-Q3, before a very gradual relaxation in Q4," she added.

NESDC has meanwhile downgraded its forecast of 0.7 to 1.2 per cent, from a May projection of 1.5 to 2.5 per cent.

Although Thailand has had a strong recovery in exports and manufacturing, thanks to the global recovery, downside risks are emerging as the pandemic is causing factory facility closures and supply chain disruptions, the Maybank Kim Eng economists said.

Furthermore, migrant worker shortages are weighing on labour-intensive industries such as a food and rubber production.

The Maybank Kim Eng team noted that the third Covid-19 wave has yet to peak with new daily cases remaining above the 20,000 mark for the sixth straight day.

The authorities had warned last week that the number of cases could double to 45,000 by early September, even with current lockdown measures in place.

Meanwhile, about a quarter of the population has received at least one dose of vaccine, and only 7.2 per cent of the population is fully vaccinated, due in part to slow supplies.

"At the current pace of vaccination, Thailand is unlikely to reopen the country fully by mid-October, as announced by Prime Minister Prayuth in mid-June," said the Maybank Kim Eng team, noting that the reopening plan was based on the assumption that 70 per cent of the population would have received at least one dose by then.

"Based on the current run rate of around 400,000 to 500,000 doses a day, we estimate that Thailand will only be able to achieve this goal by end-November and reach 70 per cent full vaccination by Q2 2022, depending on the procurement of supplies by then," they added.

The easing of movement curbs would depend on the Covid-19 situation in each region, while the recovery of domestic demand would be contingent on the pace of reopening, said Maybank Kim Eng.

Meanwhile, the tourism sector is unlikely to see recovery until 2022, and the Phuket tourism sandbox is now coming under threat with a rise in Covid-19 cases on the island.

The absence of tourism receipts, which used to account for 11.5 per cent of GDP in 2019, will turn the current account balance into a deficit in 2021, the Maybank Kim Eng economists said.