KASIKORN RESEARCH CENTER (KResearch) views that the Thai economy may have seen its trough in the second quarter on a QoQ basis. GDP for 2020 is projected to see a 10-percent contraction. Meanwhile, the Thai economy is likely to show a U-shaped recovery compared to the same period of last year. The food and beverage, electrical appliance, hotel and restaurant sectors are still cause for concern.
Ms. Nattaporn Triratanasirikul, KResearch Assistant Managing Director, said that Thailand's economy has been mired in uncertainty in the midst of the COVID-19 pandemic, the strengthening Baht and domestic political issues. KResearch has therefore revised downward its Thai economic projection for 2020 to minus 10 percent, from the previous minus 6 percent. Given the fluid situation, any economic recovery may be U-shaped. Thai policymakers face a dilemma in determining how to tackle the economic crisis. On one hand, they must carefully consider the need for additional stimulus measures that are both timely and sufficient to sustain the economy – now at the base of the U shape – so that it can emerge from the doldrums sooner rather than later. On the other hand, these measures, if implemented, come with a hefty cost as they may balloon the public debt. Moreover, the possible resurgence of COVID-19 poses another challenge as the country is gradually reopened.
Although the government has future spending plans in place, they are primarily geared towards economic rehabilitation and job creation. Therefore, public debt is not a cause for concern at this time. Regarding monetary policy, the Monetary Policy Committee may not cut its policy rate anytime soon and may opt to respond to specific events as it deems appropriate, especially after the debt moratorium measure expires in 3Q2020.
Regarding the financial sector, Ms. Thanyalak Vacharachaisurapol, KResearch Deputy Managing Director, said, “Loans within the Thai commercial banking system are projected to grow 6.5-8.0 percent in 2020, compared to the 2.3-percent pace reported at the end of 2019. Such atypically high growth has been driven by relief measures and increased loan applications from the business sector to enhance its liquidity, rather than real economic activity. In fact, close attention must be paid to asset quality as NPLs may lean towards 3.5 percent by the end of 2020, against the 3.23-percent recorded at the end of June 2020. Despite the government's need to mobilize massive funds from the financial market, existing tools of the Bank of Thailand will likely help prevent any impact on interest rates within the system, while current deposits in the banking system have grown approximately 9-10 percent over the figure for 2019."
Moreover, the government is expected to issue measures to assist debtors who are incurring more financial burdens, particularly in boosting employment for SMEs, following the first 6-8 months during which the government issued liquidity boosting measures totaling THB360 billion. The effectiveness of these additional measures would depend on either customers' level of credit risk mitigation, or the relaxation of risk assessment criteria of target customers for financial institutions. Aside from ample liquidity in the system, commercial banks' capital remains robust, with a Tier 1 capital ratio of 15.8 percent, greater than the minimum requirement of 8.5-9.5 percent and even higher than that of many developed countries. This ensures that the banking system will continue to serve as a leading mechanism in supporting customers during this crisis.
Regarding business trends, Ms. Kevalin Wangpichayasuk, KResearch Assistant Managing Director, notes that while business income may have improved in certain areas in line with the gradual lifting of lockdown measures and the government's stimulus packages, the situation is far from a return to normalcy. The three business sectors deemed to be most vulnerable at present are: 1) food and beverage, 2) electrical appliances, and 3) hotels and restaurants – these groups may be due to receive continued financial support from the authorities.