The Thai economy in 1Q21 shrank 2.6 percent YoY, less than the market forecast of -3.3 percent. This smaller-than-expected contraction was mainly driven by the global economic recovery and domestic stimulus packages, with Thai exports starting to exhibit strong signs of recovery in line with the economic rebound worldwide. Meanwhile, the current outbreak of COVID-19 – which remains out of control – continues to have massive impacts on consumption and the Thai tourism industry, despite positive factors from economic stimulus and relief measures to boost purchasing power among households affected by the pandemic, including the “We Win" financial aid scheme, the “Let's Go Halves" co-payment program and the “Section 33 We Love Each Other" cash handout project.
Given the raging outbreak, KResearch maintains a 1.8 percent growth projection for the 2021 Thai economy. High risk stemming from this crisis will persist amid the relatively low vaccination rate in Thailand, consequently affecting consumer confidence and consumption. As a result, private consumption will tend to have lower growth than previously forecast. In spite of the gradual reopening of Thailand's borders, concerns about the pandemic will continue to keep the number of foreign tourists below earlier projections. Hence, the number of international visitors in 2021 may be in the range of a mere 0.25-1.20 million people. Nevertheless, the new economic projection has taken into account the positive factors coming from moderate export growth, thanks to the global economic recovery and the ongoing stimulus packages as well as those that will be issued later in the year under the central budget of the FY 2021 Budget Act and the THB 1 trillion emergency decree loan.
Amid the strong economic rebound, commodity prices have risen significantly, contributing to a surge in inflation, which will inevitably push up the cost of living for Thai households. Since Thailand's economic recovery is bound to be slower than the general trend of economic recovery worldwide owing to the high risks generated by the recent outbreak, the rise in Thai household income and employment will not keep pace with the rising cost of living – thus resulting in stagflation. Therefore, the Thai government may be compelled to issue more fiscal measures to alleviate household expense burdens. As the government has already taken out the remaining funds under the THB 1 trillion emergency decree loan, it may be forced to seek additional loans and expand the public debt ceiling beyond 60 percent. In the meantime, monetary policy may become less effective in rejuvenating the economy amid the current inflation trend.