Thailand indicators improve in February; domestic recovery expected to continue

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THAILAND'S domestic demand improved in February as Covid-19 restrictions were eased, with economists expecting this recovery to continue - even while staying cautious about the degree to which tourism reopening plans will boost growth.

On March 31, the Bank of Thailand released its report on economic and monetary conditions in February. "Demand-related indicators improved, which we believe suggests the underlying trend will continue to improve gradually," said Barclays economists Brian Tan and Shreya Sodhani.

The private consumption index was down 2.1 per cent year on year in February - slowing from January's 4.5 per cent fall - and gained 3.4 per cent on a month-on-month seasonally adjusted basis.

Citi economist Nalin Chutchotitham expects continued improvement, as daily Covid-19 cases fall to the low double-digits, and consumer spending enjoys additional support from government cash transfers in March and April.

The private investment index rose 7 per cent, accelerating from 3.4 per cent growth in January, driven by imports of capital goods and domestic machinery sales.

Manufacturing's performance also improved to -1.1 per cent from -2 per cent in January, driven by a 16.3 per cent surge in semiconductors.

"The global chip shortage may be translating to more orders for Thailand, with capacity utilisation in the semiconductor segment climbing to near full capacity of 91.8 per cent in February, compared to just 66.6 per cent in January," said Maybank Kim Eng analysts Lee Ju Ye and Chua Hak Bin.

They expect Q1 gross domestic product (GDP) growth to come in around -3 per cent, improving from -4.2 per cent in Q4 2020, with movement to retail and recreation venues having rebounded above pre-pandemic levels as at end-February.

Their full-year forecast remains at 3.5 per cent, and they expect the Bank of Thailand to stay on hold to aid the recovery, with the policy rate at its all-time low of 0.5 per cent.

The Barclays economists hold the same expectation, noting that earlier comments from the central bank governor "suggest a preference for targeted measures rather than a policy rate cut, which may be too blunt a policy response for the current crisis".

"Instead of rate cuts, the bank is likely to continue to support fiscal policy with targeted credit and financial steps; policy rate normalisation seems far away," they added.

One factor in the recovery is Thailand's tourism reopening. The first of four phases runs from April 1 to June 30, with vaccinated foreign tourists having to serve a seven-day quarantine, after which they may visit six holiday regions.

The tourism authorities expect 100,000 tourists per month with this scheme, compared to an average of 6,663 per month from December to February.

Citi maintains its forecast of 1.2 million tourists for 2021, with tourism revenue close to that of 2020 at about 2 per cent of GDP, or US$11 billion.

Ms Nalin noted both upside and downside risks, with tourist arrivals still subject to future Covid-19 risks, escalation of domestic political protests, and the handling of a potential influx of refugees from Myanmar.

In the second phase, from July 1, the quarantine requirement will be waived for vaccinated tourists to Phuket. The Tourism Council of Thailand expects this to bring in around two million tourists to Phuket alone, mostly from China and Europe.

But the Barclays economists said: "While tourist arrivals may pick up slightly as a result of the moves, we maintain that unilateral easing of quarantine requirements is unlikely to be a game changer."

They expect tourism receipts "to help move the GDP needle" only from the fourth quarter of 2021.

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