THAILAND

Thailand’s GDP contracted by -6.1% in 2020 and we expect a recovery of +2.3% in 2021. Despite a low overall infection rate (0.1% vs. 1.3% in Malaysia, 0.9% in the Philippines or 0.6% in Indonesia, for example), as of the end of April 2021, the vaccination campaign has been proceeding very slowly and the country has been experiencing its largest outbreak of infections since the beginning of the Covid-19 pandemic. The resulting delayed and slow economic recovery means that quarterly GDP is unlikely to come back to pre-Covid-19 levels before the beginning of 2022. After a sharp economic drop in Q2 2020 (GDP contracting by -9.9% q/q), a larger-than-expected rebound was observed in the rest of the year, thanks to easing containment measures, policy support and robust exports of goods. However, services exports remained very weak (contracting -73% y/y in Q3), due to the absence of international tourists. The slow normalization of tourism going forward will weigh on Thailand’s economic recovery as before the pandemic the sector represented nearly 20% of total employment and around 10% of GDP.

Monetary and fiscal policy have been loosened aggressively since the beginning of the crisis. The government implemented fiscal packages amounting to more than 15% of GDP, consisting of cash transfers, infrastructure investment, liquidity support for firms, tax relief, debt restructuring for firms and households, investment in training and digital technology etc. Public debt is expected to have risen towards 50% of GDP in 2020, from 41% in 2019. On the monetary side, the policy rate has been reduced by a cumulative 75bp to 0.50% in 2020. The Bank of Thailand also put in place lending facilities and relaxed loan repayment conditions for firms, and committed to purchase government bonds. The central bank has signaled that financial conditions will be kept accommodative without the need to use unconventional measures but we think they could be considered, should the economy struggle even more than expected. One key downside risk apart from the pandemic is related to the political instability.   

Thailand increased its score in the World Bank’s Ease of doing business survey to 80.1 points in 2019 from 78.45 in 2018, ranking 21st out of 190 countries surveyed. Among Thailand’s strengths are the ease of accessing electricity, minor investor protection and resolving insolvency. The World Bank especially noted improvements in dealing with construction permits. Conversely, registering property, paying taxes, and trading across borders still need improvements as Thailand ranks beyond 60th in these criteria. The protests since 2020 could create a temporary risk of disrupted foreign investment into the country but past experience suggests this will not last over the long term. - April 2021.