Uncertainty remains despite signs of recovery for Thailand: economists

A MIXED picture lies ahead for Thailand's recovery, economists have said, following Wednesday's meeting in which the Bank of Thailand continued to hold the key interest rate at its record low.

Some indicators suggest improvement in the fourth quarter, but much uncertainty remains, they said.

UOB economist Barnabas Gan noted that the central bank struck a relatively more optimistic note in its policy statement, with expectations that progress on vaccination and an earlier-than-expected relaxation of curbs would support the economy.

The official gross domestic product (GDP) growth outlook was kept unchanged at 0.7 per cent for 2021, and raised to 3.9 per cent for 2022.

"Thailand's economic prognosis appears more positive at this juncture, although high-frequency data seem to have softened of late," said Mr Gan.

While the export sector continues to support overall growth, data on manufacturing, consumer confidence and the Purchasing Managers' Index continue to weaken, he added.

Barclays economist Shreya Sodhani and Brian Tan expect that the worst is over, seeing a rebound in September as restrictions eased.

"We expect the next (Bank of Thailand) report to show indications of an economy stirring back to life and economic indicators through Q4 are likely to rebound more strongly than the first reopening in Q2 2020," they said.

Maybank Kim Eng analysts Lee Ju Ye and Chua Hak Bin expect third-quarter GDP to contract 6.4 per cent from a year ago, despite the low base.

"While investment and export growth will remain positive in Q3 as external-oriented sectors were less affected by the pandemic, private consumption (55 per cent of GDP) will likely decline due to the lockdown and weak household purchasing power," they said. Recent floods that have affected farmlands also post a downside risk, they added.

Their full-year growth forecast is 1.4 per cent for this year - assuming a rebound in Q4 as the Covid-19 situation improves - and 4 per cent for next year, with economic reopening as the vaccination rate rises.

For Mr Gan, who noted "a significant level of uncertainty" for the rest of 2021 as Covid-19 cases remain elevated, a further rise in the vaccination rate is fundamental to support reopening. Vaccination take-up will support domestic spending, foreign tourism and consumer confidence, he added.

His growth forecasts are 0.7 per cent for 2021 and 3.5 per cent for 2022, "although with some upside risks for 2022's growth, especially if a sizeable take-up in vaccination rates is seen in the months ahead".

On the tourism front, the Maybank analysts noted that visitor arrivals slowed to 15,100 in August from 18,100 in July. "Despite the reopening of Bangkok and other tourist spots scheduled for Nov 1, demand will likely remain muted as many countries still require their residents to quarantine upon returning from Thailand," they added.

The Barclay analysts think there may be a pick-up in arrivals in November and December, but continue to expect just 200,000 tourists in total for the year. They added: "Overall, we think arrivals in 2021 will not move the needle for Thailand's tourism industry."

Economists agreed that the central bank is likely to maintain its accommodative monetary policy stance for the rest of the year. This is given "the relatively positive economic outlook, benign inflation rates, and Covid-19-related risks", said Mr Gan.

He sees the chance of normalisation beginning in the fourth quarter of 2022, if Covid-19 risks do not worsen.

The Barclay analysts believe "the door is now closed for rate cuts", and expect the central bank to keep rates unchanged for the next 12 months.

"Policy settings will likely remain accommodative, with the bank giving a clear preference to growth needs over price/financial stability risks, neither of which seem to be a hurdle in the bank's path for now," they said.

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