EconomyIssue 02 2023MAGAZINE
GBO_ Thai economy’s COVID recovery

Thai economy’s COVID recovery: Long road ahead

Although Thailand's economy expanded by 1.6% in 2021, amid the COVID onslaught, it was too small, compared to the 6.2% GDP contraction in 2020

COVID-battered Thailand showed signs of revival, as it enjoyed a healthy expansion in the third quarter of 2022. As per officials, the return of international tourists is helping the country to deal with persistently high inflation. Southeast Asia’s second-largest economy has registered its service sector growing by a record 87% year-on-year basis, since the country’s reopening from a pandemic lockdown in early 2022.

Thailand’s National Economic and Social Development Council (NESDC) recorded a 4.5% year-on-year rise in the GDP in July-September 2022, thus projecting this year’s overall growth at 3.2% while forecasting 3.0/4.0% for 2023.

As per reports, Thailand is expecting to generate around 570 billion baht (USD 15.8 billion) in tourism revenue this year. Since its border reopening, it has welcomed some 10.2 million visitors. However, the figure is still down from the roughly 40 million arrivals during the pre-pandemic years.

While reiterating that the Thai economy is showing signs of recovery, Danucha said that the kingdom was pinning its hopes on China relaxing its strict COVID-19 travel rules.

“We believe that China is likely to relax travelling restrictions in the second half of next year,” he commented.

As per Bloomberg reports, Chinese visitors had made up a huge part of Thailand’s tourism economy and accounted for some 28% of all international arrivals. Officials reportedly anticipated roughly 23 million tourists in 2023, predicting 1.2 trillion baht in generated revenue.

These promising figures come at a time when the country is facing high inflation amid the global economic slowdown. Although its current inflation figure is just below 6%, it has touched a 14-year high.

Knowing Thai economy in detail

The country is dependent on exports. As per 2019 figures, about 60% of Thai GDP came from exports alone. Thailand is a newly industrialized country, with a recorded GDP of 16.316 trillion baht (USD 505 billion). In 2018, World Bank called the country Asia’s eighth-largest economy.

The industrial (39.2%) and service sectors contribute in large proportions to the Thai GDP. Thailand’s agricultural sector also produces 8.4% of the GDP. However, the contribution is lower compared to the sectors like trade, logistics and communications, which account for 13.4% and 9.8% of GDP respectively. The construction and mining sector also add 4.3% to the country’s GDP. Other service sectors like the financial, education, and hospitality ones account for 24.9% of the Thai GDP. Telecommunications and trade in services are now emerging as centres of industrial expansion and economic competitiveness within the country.

Thailand, the second largest economy in Southeast Asia, registered a per capita GDP of USD 7,273.56 in 2018, which was the fourth in the region, after Singapore, Brunei, and Malaysia. In July 2018, Thailand held USD 237.5 billion in international reserves, the second-largest in Southeast Asia after Singapore. Its USD 37.898 billion worth current account balance surplus was ranked tenth in the world in the same year.

Thailand ranks second in the region in external trade volume, with Singapore topping the ranking.

The nation got recognized by the World Bank as “one of the great development success stories” in social and development indicators. Despite a low per capita gross national income (GNI) of USD 6,610 and ranking 83rd in the Human Development Index (HDI), the percentage of people below the national poverty line decreased from 65.26% in 1988 to 8.61% in 2016, according to the Office of the National Economic and Social Development Council’s (NESDC) new poverty baseline.

Thailand also has one of the lowest unemployment rates in the world, which was reported as 1% for the 2014 first quarter. The figure got revised to 1.42% in 2021. After rising up to 1.53% in early 2022, it came down to a two-year low of 1.37% in the second quarter of the same year.

The COVID blip and job losses

As countries started exercising measures like border closure and lockdowns to prevent the transmission of the COVID-19 virus, Thai economy felt the heat. While its GDP fell by over 6% in 2020, the tourism sector endured job losses. The government did implement a package of fiscal, monetary, and financial policies to mitigate the pandemic’s impact on the domestic economy.

An International Monetary Fund (IMF) report on June 23, 2021, commented, “Thailand’s economy is forecast to grow at 2.6% in 2021, and a surge in COVID 19 infections in the country and the region since the beginning of the year highlights the uncertainty about the path of the pandemic and the importance of continued efforts to contain the spread of the virus for a strong and durable recovery.”

“Thailand’s GDP fell by 6.1 per cent in 2020, the largest contraction since the Asian financial crisis. The tourism sector, which accounts for about a fifth of GDP and 20 per cent of employment, has been especially affected by the cessation of tourist travel. Low-skilled workers and informal and migrant workers have been hit hard, particularly women and the youth, who have suffered disproportionately from diminished employment opportunities in contact-intensive sectors bearing a significant burden of the layoffs observed in 2020. The financial sector has thus far weathered the pandemic well, but stress has been building up in the small and medium enterprises sector,” IMF observed further.

Thai government went for a proactive and effective containment of the pandemic, along with a multipronged policy package, comprising fiscal stimulus amounting to about 10% of its domestic GDP and a 75 basis point cut in the monetary policy to an all-time low of 0.5%, and financial sector, along with other supporting steps for the debtors. The country went for aggressive health spending to help the affected households, including the ones outside the social security system. These measures saved both lives and livelihoods, apart from supporting an initial economic recovery as the country reopened in phases. However, the fiscal deficit widened to 4.8% of GDP in 2020 and the public debt-to-GDP ratio increased to 49.6% of GDP in 2020 from 41% in 2019.

“Economic recovery in 2021 is expected to be sluggish, with growth projected at 2.6% in the recently completed 2021 Article IV consultation and divergent across sectors. Prospects for a near-term recovery are challenged by an aggressive third wave of the pandemic. This environment calls for flexibility and careful coordination among the fiscal, monetary and financial sector policies to adapt to fast-changing circumstances. Most important to a resilient recovery at this juncture is the vaccine policy. Accelerating and ensuring adequate distribution of vaccines is critical to attain herd immunity, put an end to the pandemic and lay the groundwork for a strong recovery,” IMF commented in 2021, while suggesting that a premature withdrawal of the above-mentioned support measures would not be prudent.

The global financial body suggested other measures such as ambitious fiscal expansion, which spending focused on the scaling up of public investment and protection of the vulnerable.

“As the crisis subsides and the recovery strengthens, Thailand will need to initiate a medium-term revenue mobilization strategy to rebuild fiscal buffers and ensure fiscal sustainability. Rebuilding fiscal buffers after the pandemic will require additional effort in both revenue generation and expenditure prioritization. Targeted and more effective financial sector support to hard-hit firms and households, complemented with additional monetary accommodation, would also support the recovery,” it commented.

“Further scaling up of investment, particularly for digital infrastructure, combined with improving training and education outcomes and promoting innovation will catalyze the economy’s digital transformation and mitigate the possible long term economic damage from the pandemic,” the IMF report stated further.

Although Thailand’s economy expanded by 1.6% in 2021, amid the COVID onslaught, it was too small, compared to the 6.2% GDP contraction in 2020.

An uncertain road ahead

Despite the tourism sector leading Thailand’s recovery story in 2022, things are not as rosy as it seems. As per CNA reports, the country’s private consumption held steady, whereas exports, the biggest contributor to its GDP, weakened following a slowdown in trading partners’ economies.

The economy might accelerate in 2023 and hit the 3.8% growth if Chinese tourists return, helping offset weakening exports as global demand slows, Finance Minister Arkhom Termpittayapaisith said recently.

Thailand’s GDP growth of 3.1 to 3.2% in 2022, after the 1.5% expansion in 2021, is among the slowest in Southeast Asia.

And not to forget that the hopes of the global economy coming back on the revival path post-COVID have suffered a significant blow due to the global supply chain disruption amid the Ukraine war and sanction games between Russia and the United States-led Western block. Since Thailand is a part of the same ecosystem, the country is bound to face headwinds as well. The monetary policy tightening by central banks across the world, coupled with a strong dollar, high energy prices, expensive imports and a falling purchasing power only aggravates the situation further.

“The Thai economy will face many headwinds but also tailwinds next year, mainly from the global economy and geopolitical tensions. In 2022, the Thai economy slowly recovered from the COVID pandemic as lockdowns ended and the economy was reopened to international travel,” remarked a report from the Bangkok Post.

“Next year, the Thai economy is forecasted to grow by 3.5%. The continued expansion will be fueled by the growth of household consumption, remittances from tourism, especially international travellers, growing exports, especially to China, as well as private investments, particularly the relocation of high-tech production from China to Thailand. Even so, recession in major economies, geopolitical tensions, high prices, and lending interest rate hikes continue to be key headwinds for next year. Thailand’s major export markets are forecasted to face a recession in 2023. The IMF’s most recent forecasts show a sharp slowdown in the growth of the US and European Union (EU) economies, which are Thailand’s major importers,” it remarked further.

“Natural gas and oil prices have peaked but will remain high next year as their supply from Russia is disrupted. However, should there be an escalation of the war in Ukraine, energy prices and freight prices? Semiconductor shortages will likely last until 2024 as China is unable to produce semiconductors due to the US’s export ban on semiconductor parts to China. New semiconductor fabrication plants, which cost billions of US dollars and at least two years to complete, are being built outside of China. These pose headwinds for the recovery of the Thai economy as Thailand relies on imports of energy and semiconductors, the latter mainly for its car and electronics manufacturing,” commented the report, thus firing a warning shot for the Thai policymakers as 2023 nears.

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