The Thai economy continued to improve from June to July due to the recovery in domestic consumption and exports with no foreign tourist arrival for four consecutive months, the Bank of Thailand (BOT) said on Monday.
The central bank said in its monthly report on the economic and monetary conditions for July that private consumption indicators, merchandise exports value, and manufacturing production have “exhibited lighter contractions.”
However, private investment indicators are contracting deeper while there is still no sign of life from the tourism sector due to ongoing travel restrictions on foreign tourist arrivals.
The BOT said private consumption has continued to improve from June to July, recovering in the labor market, household income and consumer confidence.
Export value continued to drop by 11.9 per cent year-on-year in July but that is lower than the 24.6 per cent contraction in June.
The central bank said the smaller contraction is due to improvements in several categories including machinery and equipment, and electronics.
This is in line with the return of economic activities in trading partner countries after lockdown measures were eased globally.
With more domestic consumption and exports, manufacturing production also contracted at a slower rate in almost all categories.
The BOT said the labor market “somewhat improved”, as the number of workers registered for the temporary suspension of business has declined but overall employment condition is still weak.
At the same time, private investment indicators contracted at a higher rate in July when compared to June.
Private investment
The central bank said investment in machinery and equipment has been weighed down by the contractions in the import of capital goods, the number of newly registered motor vehicles, and domestic machinery and equipment sales.
Import contracted by 25.4 per cent in July on top of the 12.3 per cent contraction during the first half of 2020. The BOT expects import value to contract by 16.2 per cent in 2020.
“The weakening was a result of domestic and external demand still in the early stage of recovery, significant excess production capacity, and high economic uncertainty,” read the BOT’s report.
“However, investment in construction expanded slightly due to construction material sales, reversing the contraction last month,” they added.
For tourism, the country still recorded no foreign tourist arrivals in July, the fourth consecutive month as international travel restrictions remained in place.
In the first six months of 2020, only 6.7 million foreigners visited Thailand, representing a drop of 66.2 per cent year-on-year.
Don Nakornthab, the BOT’s senior director of its Economic and Policy Department, said if the government could come up with measures that would enable foreign tourists to reenter the country, it would only be better for the economy.
“Over the next period, if we can find ways for foreign tourists to return, it will be an important factor that could help with the recovery of the economy in the second half of 2020 and in 2021,” he said.
“However, this has to be done carefully because of the possibility of a second outbreak,” he added.
Projections
The BOT now expects the country to head into a recession of at least 8 per cent in 2020, based on the assumption that export value will contract by more than 10 per cent.
For the first half, export value already decreased by 17.8 per cent, minus 29 per cent if excluding gold. For tourism, the BOT is now expecting only 8 million visitors compared to 39.8 million visitors in 2019.
The Kasikorn Research Center said last Friday that they expect the economy to contract by at least 10 per cent in 2020 with a potential for a U-shaped recovery.
A U-shaped recovery is established when certain indicators, such as employment, GDP, and industrial output sharply decline and remain depressed over a period of 12-24 months before they bounce back up.
They said the economy is still facing various challenges including the strengthening of the baht, rising political instability, and the possibility of a second wave once the country is fully reopened for everyone.
They anticipate the number of loans within the commercial banking system to increase by 6.5-8 per cent year-on-year in 2020 compared to an expansion of 2.3 per cent in 2019 from higher demand.
Meanwhile, non-performing loans within the system are also expected to rise from 3.23 per cent at the end of 2019 to 3.5 per cent at the end of 2020.
They said the BOT should be able to keep the rising NPL situation under control as the level of savings within the commercial banking system is also suspected to expand by 9-10 per cent from last year.
At the same time, the government has already flooded at least 360 billion in terms of liquidity into the system via measures to help debtors, especially for SME’s. This should be able to keep the unemployment situation under control as well, they added.
For industries, the think-tank said businesses that will continue to be most affected by the pandemic include businesses that are related to the food and beverages sector, manufacturers of electrical appliances, and hotels and restaurants.
[Photo courtesy of the Bank of Thailand]
