Outlook Quarter 4/2021

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EIC assesses that the Thai economy will grow faster than expected at 1.1% in 2021, up from the previous estimation of 0.7%. The upward revision follows the subsiding domestic outbreaks, rising number of vaccinated people, and easing governtment restrictions, which allow a resumption in various economic activities. Also, tourists arrivals are likely to pick up after Thailand’s re-opening and help bolster growth recovery. Meanwhile, Thai exports should remain robust thanks to a low-base effect from last year and global economic and trade expansion, although the recent COVID-19 resurgence in Europe and a supply bottleneck might weigh down on Thai exports during the end of 2021. The government has continued injecting money to buttress domestic consumption along with various relief measures to prop up the Thai economy.

As for 2022, EIC revised down our growth forecast from 3.4% to 3.2%. We expect a rebound in domestic and external demand, led by buoyant exports in line with an improving global economy and trade. Besides, the tourism sector will likely regain pace as higher vaccination rates in Thailand and other countries help facilitate international travel. So far, we anticipate around 5.9 million foreign visitors next year. Nonetheless, the new COVID-19 "Omicron" variant is a critical risk that warrants monitoring. Some early signs suggest that the new variant could be more transmissible and resistant to currently-available vaccines. However, we expect the adverse effects on the economy to be milder than those of Delta, as inoculation rates in Thailand and other countries are now higher, allowing for the government to exercise looser restrictions than before. Meanwhile, business sectors and households are better prepared for changing circumstances through growing e-commerce and online channels. Domestic spending is poised to regain pace in the short term, driven by the sectors gaining from pent-up demand and stimulus measures. Still, an overall rebound would proceed slowly due to scarring effects in the past two years: worsening household income, subdued labor market, and high debt burden. The government will still play a vital role to shore up economic recovery with an injection of the remaining THB 260 billion from the 500-billion-baht decree and large infrastructure investment. Yet, overall government supports will likely wind down as the economy is getting back on track.

Thailand’s economy is poised to rebound next year, but the pace should be slow and still lagging behind its full potential. As a result, output loss will be high and thus weaken future growth capacity due to slow investment and subdued employment. We expect the economy will return to its pre-pandemic 2019 level by mid-2023. In addition, there has been an alarming risk of new outbreaks as the Omicron variant started its wave in many countries. This is a major downside risk that might cause the Thai economy to grow weaker than anticipated. Therefore, the government should consider extra spending to reform the economy amid changing global contexts through labor upskilling and reskilling, support for digitalization among the SMEs and investment New S-Curve industries.

Aside from the emergence of the Omicron variant in Thailand and globally, Thailand's economic growth still faces other downside risks. First, new COVID-19 variants might emerge and cause widespread infections. Second, rising inflation due to a rapid increase in commodity prices and global supply bottleneck could affect the economy directly through reduced purchasing power and indirectly via tightening monetary conditions especially if the Fed raises the interest rate faster than expected. Third, the Chinese economy may slow down further from the over-leveraged property sector. Finally, deep scaring effects might aggravate further and thus hamper household and business’s ability to service debt.