Krungsri Research: We upgrade 2020 GDP forecast to -6.4% from -10.3% and see 2021 growth at 3.3%

26 November 2020

Krungsri Research's view:
We revised up 2020 GDP growth forecast to -6.4% from -10.3% and projected 2021 growth at 3.3% amid challenge and opportunity
Thailand Economic Outlook 2020-2021

The upward revision for 2020 economic growth forecast reflects better-than-expected 3Q20 GDP data, accelerating public spending, and stronger merchandise exports. Looking ahead, Thailand’s economic growth is expected to turn positive from the second quarter of 2021, supported by low-base effect, government’s spending and a cyclical rebound of external demand. We see challenges lie ahead with domestic headwinds. Tourism recovery is lagging behind other economic growth drivers, leaving large excess capacity in several services sectors. Job losses would continue to weigh on income and consumer spending. Domestic political unrests could undermine economic growth and raise concern over continuity of economic policy. However, exports would become an engine of growth. Private investment in export-related sectors could improve moderately. An opportunity for the economy is coming from rising regionalization, which could provide supports to Thai exports and domestic production in the medium term.

Key revisions:
  • We projected foreign tourist arrivals to decline to 4.0m in 2021 from 6.7m in 2020, as a result of pandemic concerns, delayed travel bubble scheme and longer-than-expected travel restriction worldwide amid the second and the third round of outbreaks in the world’s major countries. Despite the recent good news about vaccine development, a surge in the number of foreign tourist arrivals is unlikely to be seen until the fourth quarter of 2021 when there is the mass vaccination worldwide.
  • Revised up 2020 private consumption growth forecast from -4.2% to -1.1% and expected 2021 growth at 2.5%. Consumer spending in 2020 would contract smaller than our previous forecast, encouraged by the government’s cash aids worth more than THB400bn during 2Q20-3Q20 and measures to boost domestic spending worth around THB100bn in 4Q20. In 2021, further stimulus (government’s extra-budget left around THB200bn) and purchasing power of middle- to upper-income groups should continue to foster private consumption. Nonetheless, its upside growth would be limited by fading tailwind from pent-up demand, an end of short-term stimulus, and crisis legacies, particularly unemployment and debt.
  • Raised 2020 export growth forecast from -12.5% to -7.5% and projected 2021 exports to expand 4.5%, given the improvement of YTD growth and positive momentum for the following reasons; (i) rising demand for products relating to COVID-19 prevention, medical supplies and work-from-home policy; and (ii) signs of cyclical recovery of global manufacturing sector, led by growth in advanced economies amid their massive stimulus measures. The WTO projected the growth of world merchandising exports to pick up to 7.2% in 2021 from an estimated -9.2% in 2020. Also, there is an opportunity in the medium term as ASEAN is expanding economic ties and shifting to greater regionalization.
  • Revised up 2020 private investment growth forecast to -11% and expected 2021 growth at 3.2%. We see signs of moderate recovery in private investment that relates to export sectors, premised on a strong correlation between exports and equipment investment in the past. Also, production capacity utilization rates in several manufacturing sectors recently have reached their pre-pandemic levels, paving the way for investment expansion.
  • Raised 2020 public investment growth forecast to 12.5% and projected 2021 growth at 10.5%, to reflect the speeding up of government’s disbursement of capital budget. The government recently planned to set up a committee to accelerate budget disbursement of state agencies. Also, a long delay to the passage of FY2020 Budget Bill becomes a favorable base effect for year-on-year growth of public investment in FY2021.

Our baseline view remains no rate change with more assistance programs next year
Despite the upward revision of our economic forecast, we see the gains from cyclical rebound of economic activity would be restrained by domestic headwinds. The economy’s high reliance on tourism sector is leaving damage on businesses, jobs, and income. Such legacies from COVID-19 crisis could be dampened by further travel restriction, insufficient policy response, and rising political tensions. A fragile economic recovery, still-low inflation, and extra-loose monetary policy of the world’s major central banks suggest the MPC to maintain policy rate at a record low throughout 2021. In addition, the uneven economic recovery sets the stage for implementing further targeted monetary easing and more assistance programs, ranging from measures for helping maintain business operation to measures for preventing a downward spiral of liquidity problem.
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