Thailand’s economic growth prospects over the short and medium term are limited. Private consumption and the tourist sector, the main engines of growth, will remain weak for some time. In tourism in particular, it is highly unlikely that the activity levels of 2019 will return before 2024. Moreover, the structural weaknesses of the economy (lack of investment and infrastructure) have been worsened by the pandemic and will hold back the recovery, particularly in exports. This said, although the country’s external vulnerability has increased over the last two years, it remains moderate for the time being.
Moderate economic growth in 2021
After contracting by nearly 7% in 2020, Thailand’s GDP bounced back only slightly in 2021. Economic growth was feeble in the first half (2.5% y/y) and was then held back in the second half by restrictions introduced to tackle a new wave of Covid-19 cases. Real GDP fell 0.3% y/y in the third quarter and we are expecting to see an additional fall in the fourth.
ForecastsGiven the faltering start to the vaccination campaign (a series of delays in ordering vaccines followed by problems in their supply and distribution), a very low percentage of the population had been vaccinated by the beginning of July when case numbers started to rise rapidly again (only 14% of the population had received their first dose, and less than 5% had received two doses). The restrictions introduced by the government were therefore very strict, hitting the services sector, private consumption and investment very hard despite new support measures from the authorities (most notably a sizeable increase in government investment). At the same time, the reopening of borders, which had been planned at least for the most popular tourist regions, was delayed until November.
Net exports also made a negative contribution to growth in the second half: imports (mainly of capital goods) continued to rise, whilst Thailand benefitted[RK1] less than other countries in the region from the strength of global demand for electronic products. Supplychain disruptions, including the temporary closure of some factories (in Malaysia for example), the global shortage of semiconductors and the rising cost of transport also hit exports. Overall, we estimate that Thailand’s real GDP grew by less than 1% in 2021.
Recovery undermined
Given the rapid increase in new Covid-19 infections since the beginning of January, the prospects of a strong economic recovery have been seriously compromised.
Although the government’s vaccination target has nearly been met (some 68.5% of the population had received two vaccine doses by the end of December, against a target of 70%), a new set of restrictions was announced by the government on 6 January.
The country has returned to alert level 4 (of 5): working from home is strongly advised, many sites identified as ‘presenting a high risk of transmission‘ could be closed, whilst those places that remain open are subject to strict rules and gatherings of more than 500 people are banned.
Apart from the 8 provinces most visited by tourists (called ‘pilot zones‘), all provinces have now returned to their ‘orange zone‘ classification.
Against this background, and bearing in mind that even stricter measures cannot be ruled out in the short term (alert level 5 would allow the introduction of curfews and a ban on gatherings of more than 5 people), the authorities will need to continue to prop up the economy. The 2023 budget, put before parliament in December 2021, already included a ‘Covid-19‘ component, and the central bank left its policy rate unchanged at 0.5% (as it has been since May 2020) at its most recent meeting, given limited inflationary pressures (inflation was 2.2% y/y in December, giving an annual average of 1.2%). The central bank also believes that the negative output gap could persist until at least 2023.
These measures will probably not be enough to stimulate domestic demand, which is likely to remain sluggish in the first quarter, before recovering gradually. Similarly, exports could be hit by slower global demand in the early part of this year. Overall, real GDP growth is unlikely to be above 3.5% in 2022.
