The Thai economy would continue to face “high uncertainties”, the Bank of Thailand (BOT) said in its latest monetary policy report on Wednesday.
The quarterly monetary report for the month of June said the central bank’s current economic projection is “tilted downward” and “depended largely on the impact of COVID-19.”
According to the BOT’s current projection, the Thai economy will face a recession of 8.1 per cent in 2020.
The GDP projection is based on the assumptions that export value, which accounts for 70 per cent of the total output, will contract by 10.3 per cent with 8 million visitors in comparison to 39.8 million visitors in 2019.
The BOT’s report highlighted four factors that could negatively affect its current economic projections:
- Slower than expected global economic recovery would lead to a larger-than-expected impact on Thai merchandise exports.
- Default risks of businesses and households could increase.
- The recovery of the tourism sector could be slower than expected.
- Thailand could experience a second wave of the COVID-19 outbreak, triggering another round of lockdown measures.
They also added that the re-intensifying trade tensions between the US and China, and geopolitical risks such as tensions between mainland China and Hong Kong, could also derail Asia’s economic recovery.
However, there are also three factors that could allow the Thai economy to outperform its projections:
- Better-than-expected results from the government’s additional stimulus measures to shore up domestic consumption and investment, and measures to assist borrowers.
- Public infrastructure investment and PPP projects which could incentivize the private sector to invest more than expected.
- More relocations of production base to Thailand thanks to the success in containing the spread of the virus.
For financial stability, the BOT said the overall financial conditions in Thailand has become “more accommodative” in June as reflected by the real policy interest rate that declined and remained low compared with those in other emerging markets.
They said corporate credit spreads have stabilized after having risen at the beginning of the second quarter of 2020 when investors were concerned about the profitability outlook of some businesses.
They added that commercial bank lending rates have declined “substantially” in line with the policy rate and the reduction in the Financial Institutions Development Fund contribution.
The country’s benchmark lending rate is now at a historic low of 0.5 per cent.
The BOT also warned that a larger-than-expected contraction of the global economy could result in:
- Sharp corrections in asset prices in global financial markets.
- Defaults by businesses and households in many countries including Thailand.
- Corporate bonds being downgraded to a non-investment grade.
Looking ahead, the central bank said the Thai economy was expected to bottom out in the second quarter of 2020 and would gradually recover from the third quarter onward following the reopening of businesses.
For 2021, the BOT expects the Thai economy to expand at 5 per cent due to the lower base in 2020 along with the government’s stimulus package and large-scale investment projects.
Nevertheless, this projection for 2021 is based on the first assumption that there would not be a severe second-wave of COVID-19 in Thailand.
If so, this would allow for the gradual reopening of the country under the travel bubble scheme.
The second assumption is that there would be widespread availability of COVID-19 vaccines from the fourth quarter of 2021 onward.
