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10 Jun 2021

Thai Economy

Economic challenges amid COVID-19 third wave (Press June 10, 2021)


KASIKORN RESEARCH CENTER (KResearch) has kept its Thai economic projection for 2021 unchanged at 1.8 percent. The research house views that the Thai economy remains mired in uncertainty due to the persistence of COVID-19 both domestically and abroad, as well as vaccination progress. In the next 1-2 months, vaccination progress and COVID outlook should become more apparent. If vaccinations can continue at a fast pace, household and business confidence would improve, and  accelerating economic growth in Q4/2021 would be more likely.

Ms. Nattaporn Triratanasirikul, KResearch Assistant Managing Director, noted that, “KResearch's economic projection is based on the assumption that the third pandemic wave will recede in July. This figure takes into account improved exports in line with the global economic rebound and the government's relief measures still to be rolled out, including the third phase of the “Let's Go Halves" co-payment program, the third phase of the scheme to boost the purchasing power of holders of the government's welfare card, and “The More You Pay, the More You Get" e-voucher scheme. The progress of vaccination rollouts should become more apparent during June-July. If the volume of immunizations is sufficient to restore the confidence of the household and business sectors, the Thai economy should see accelerating growth in the final quarter of this year. Such a development would lead to brighter prospects for the Thai economy in the remainder of 2021 and 2022. 

Aside from vaccinations and other pandemic control measures, the government must contend with four major challenges, namely fiscal burden, inflation, household debts and rising business costs – all of which will complicate matters in driving the economy forward.

Ms. Nattaporn asserts that higher fiscal deficits and extension of the public debt ceiling will not be a cause for concern over the short term, but expects that public debt to GDP may exceed 60 percent in 2022. Over the medium term, however, confidence in Thailand's fiscal discipline might wane if its fiscal deficit remains at an elevated level. Regarding rising inflation, although this should be only a short-term issue that will not prompt the Monetary Policy Committee to change its monetary policy stance, it is emerging as the Thai economy is still struggling to recover. As the substantial US economic recovery may lead the Fed to begin normalizing its monetary policy, financial costs could increase through higher bond yields globally, including Thailand, thus pressuring the business sector even when it has only begun to bounce back.  

Ms. Thanyalak Vacharachaisurapol, KResearch Deputy Managing Director, said regarding a survey on the third wave of COVID-19's impact on household debt, it was found that retail segment debt has further deteriorated. Notably, the vulnerable group facing reduced income, inability to cut down expenses and debt service ratio (DSR) exceeding 50 percent amounted to 22.1 percent of those polled, an increase from the figure of 10.8 percent recorded during the second wave of COVID-19. With household debt projected to approach 90 percent of GDP in 2021, relevant sectors may have to pay serious attention to this matter after the latest wave of COVID-19 has subsided. 

The final challenge lies in rising costs or product prices which have further undermined business operators' financial position. Ms. Kevalin Wangpichayasuk, KResearch Assistant Managing Director, views that this issue chiefly affects commerce businesses – most of which are small- and medium-sized enterprises (SMEs) – amid the ongoing COVID-19 crisis which still weighs upon consumer spending, and the highly competitive market at present. Preliminarily, a 1 percent rise in consumer product prices is estimated to affect SME retailers around THB23.6-THB23.8 billion given that they cannot totally pass the burden on to consumers. Meanwhile, government measures have lessened the impact on both consumers and businesses. However, if the economy improves, these issues will likely recede somewhat. Close attention should thus be paid to consumer confidence, as it will determine retailers' path to recovery over the remainder of 2021.​​

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Thai Economy