CIMB Research Note : 3 Waves, 2 Lockdowns and 1 Hope

• More stringent measures to control economic activities, aiming to lower daily covid-19 infections, appeared to be similar to lockdown measures during the first wave attack last year. Private consumption could fall moderately, following fewer people going outside and shorter business operating hours. Thailand’s economy could experience another round of a technical recession, two consecutive quarters decline in real GDP on a quarter-on-quarter basis.

This time is different

• Despite these similarity, the economy is unlikely to experience a sharp year-on-year contraction as seen last year. Main difference is a sharp recovery of exports. Exports in March jumped over 8% from last year, thanks to accelerating recovery in the US and China. Exports of goods this year could grow about 10%, driving by higher demand for auto parts, electronics, chemicals, rubber products and processed food. Employment in these export-oriented sectors would likely to recover, raising non-farm income and higher purchasing power among these groups. Meanwhile, farm income could gradually recover from last year amid less severe drought problem and higher farm prices. Main challenge is how fast Thailand could control the spread of virus so as to ease the lockdown measures and open domestic markets once again. 

Hope for stronger recovery: Vaccines

• Speedy vaccination process is a main hope for economic recovery. Without a rapid vaccination to all adult population, there could be pandemic wave 4, 5 and so on. The government would apply another lockdown and then ease the measures once the number of daily new cases drops. However, the government would need to resume the process in a spiral web until we all have immunity. Domestic demand will gradually recover in the third quarter, given a timeline for vaccination. In addition to vaccination, the government will ease measures for business operation once we could control the number of daily infection down. There will be pent up demand during the beginning period, meaning people will spend a lot more than usual to compensate their delayed spending during lockdown. However, higher spending in Q3 may not fully compensate the loss of opportunity in Q2. Domestic tourism will likely to gradually resume, supporting demand for hotels, restaurants, and transportation services. The economy may not grow fast due to lack international tourists. We do not expect foreign tourists to jump significantly, given the timeline for vaccination for Thai people to gain herd immunity and for foreign tourists to gain confidence on the control of virus in Thailand.

Revised 2021 GDP forecast from 2.6% to 2.2%

• We revised down the GDP forecast of Thailand from 2.6% to 2.2%. The revision is based on lower projection on private consumption due to the third wave pandemic. Growth driver is exports of goods which could grow nearly 10%, which will support private investment. Given lack international tourists, Thailand’s economy would likely remain sluggish this year. The Thai baht is projected to weaken against the US dollar, following capital outflows for fear of QE tapering amid higher inflation expectation in the US. The Thai baht could weaken by over 31.50 baht per US dollar by the second quarter. However, we do not expect a continual depreciation of the baht, given that the market has already priced in a movement by the Fed while Thailand could gain a current account balance surplus during the second half of the year due to higher exports. We projected the year-end USD/THB at the level 31.30. Meanwhile, the Bank of Thailand could keep the policy rate unchanged at 0.50% per year while it could increase an injection of soft loans to SMEs and support financial institutions to help restructure debt of clients, especially those in the tourism-related sectors that may take longer time for recovery.

Downside risk is on slow vaccine rollout

The downside risk of Thailand’s economic growth is the slow vaccine rollout, which could cause lower confidence of consumers. New daily infections would likely to remain high and the government could implement stringent measures to deter crowded places, affecting business operations. GDP growth of Thailand in 2021 could fall to 0.7%. Similar to a base case scenario, exports of goods remain a growth driver. The Thai baht could weaken slightly against the US dollar amid lowering confidence of investors. The Bank of Thailand would consider cutting the policy rate to 0.25% per year so as to support economic recovery. In sum, fiscal and monetary policies could be applied to avoid sharper recession or to stimulate stronger recovery. However, these policies are buying time before Thai people receive full vaccinations to prevent another