Pandemic sinks economy
Economist issues contraction alarm
Increasing coronavirus infections are expected to weigh down the economy more than previously anticipated, leading to a contraction of 1%, says Standard Chartered Bank Thai.
If the bank’s forecast takes hold, this year’s economy will have a worse downturn than the global financial crisis in 2009, when the economy contracted 0.7%.
Standard Chartered economist Tim Leelahaphan forecasts Thailand’s economic growth will shrink 3% year-on-year for the three months through March.
Thailand’s economy shows no signs of a turnaround, with the outbreak dealing a further blow to activity and the consumer confidence index in February slipping to the lowest level since April 1999, he said. Domestic financial markets, even bond markets, continue to sell off.
The bank earlier forecast the economy would grow 1.8% this year.
The timing of a tourism recovery is difficult to predict, but it could be delayed beyond the second quarter, said Mr Tim.
The latest data from the Tourism Authority of Thailand shows foreign arrivals in February plunged 44.3% from the same period last year, with a 85.3% year-on-year fall in Chinese tourist arrivals.
The tourism sector, which accounted for 11.1% of Thailand’s GDP in 2019, is bearing the brunt of the downturn. The government recently launched relief measures for virus-hit individuals, small businesses and companies, injecting 400 billion baht into the economy.
“While the relief measures have provided an initial boost to sentiment, they may have a limited impact on private consumption or the economy as a whole. We believe more effective fiscal spending is needed, particularly public infrastructure investment, before the private sector responds. A personal income tax cut could be more effective,” he said.
For monetary policy, Mr Tim predicts the Bank of Thailand will cut the policy rate by 25 basis points at its meeting on March 25, bringing the rate to a new low of 0.75%.
“Given recent decisions by other central banks, we do not rule out an inter-meeting move prior to March 25, or a deeper cut of 50 basis points. In line with the downgrades to our economic outlook, we see the policy rate being cut another 25 basis points in the second quarter and again in the third quarter, taking the rate to 0.25%,” he said.
The Bank of Thailand’s monetary policy space is more limited than other central banks, said Mr Tim, noting policy rates below 0.5% could create transmission difficulties, with banks unable to match the central bank cut given their mandatory contribution of 0.47% of deposits to the bailout fund and the Deposit Protection Agency.
“While we expect the economic situation to require the central bank to cut rates to 0.25% by year-end, we see little room for zero or negative rates against this backdrop. Quantitative easing is also unlikely given the unclear pass-through to businesses, especially those that do not have access to financial markets,” he said.
