September 28, 2022
  • September 28, 2022

The recovery still at a standstill

By on August 23, 2021 0

We have significantly reduced our outlook for economic growth in Thailand given the increase in Covid-19 cases in the third quarter and the disruption to business that followed.

The country is facing its worst outbreak since the start of the pandemic, with cases reaching over 20,000 per day in August, well above previous outbreaks and resulting in increased deaths. Authorities have imposed strict measures to curb the spread, which could be extended beyond the end of August, given the continued rise in daily cases and the country’s low vaccination rate (only 7.5% of the population is fully vaccinated as of August 16).

The initial use of vaccines, such as Sinovac, which has been shown to be less effective against the spread of the Delta variant in Thailand, may mean that vaccination rates will have to increase even more to achieve herd immunity.

All this will slow down the modest economic recovery, which had slightly surprised on the upside in the second quarter. As a result, we have lowered our forecast for real GDP growth for the full year to 1.9%, from 3.0% earlier. High downside risks persist given the challenges authorities faced in reducing the latest outbreak.

Real GDP growth in the second quarter was 7.5% year-on-year, beating Bloomberg consensus expectations of 6.6%. While annualized growth was skewed by large base effects (the economy contracted 12.2% in the second quarter of 2020), quarterly figures showed a recovery in activity of 0.2% in the first quarter to 0.4% in the second.

The main drivers of the recovery were exports and public consumption, with growth of 10.8% and 1.2% respectively compared to the first quarter. Gross fixed capital formation (GFCF) also rose 0.5%, but is slowing from the 4.0% growth rate recorded in the first quarter.

In particular, there were signs of a certain rebound in tourism activity, with accommodation and catering activity increasing by 19% compared to the first quarter, when this activity recorded a decrease of 20, 4%.


However, private consumption showed persistent weakness, contracting 2.5%, after falling 0.6% in the first quarter. Disruptions due to some tightening of mobility measures likely weighed on retail activity. This does not bode well for growth in the third quarter, which will be further hampered by tighter restrictions. As a result, we have downgraded our outlook for private consumption from 1.0% to stable growth.

Consumer confidence is also on a downward trajectory, with the index dropping from 47.8 in January to 40.9 in July, its lowest level since February 1999 in the aftermath of the Asian financial crisis.

Erosion of household income and persistent job insecurity weighed on household morale and resulted in a higher propensity to save. Indeed, consecutive quarters of negative private consumption growth underscore the challenges facing the domestic demand outlook, including the low share of households in national income and high levels of indebtedness (the debt ratio of households to GDP stood at 77.8% in the first quarter, compared to 68.6% in the fourth quarter of 2019).

Government grants announced in June will boost household spending, but the sharp drop in consumer confidence is unlikely to be reversed until the threat of a pandemic subsides significantly. As such, we do not expect private consumption to be a real boost to the economy in the coming quarters.

We maintain our forecast for public consumption growth at 1.8%, after an average growth of 1.6% year-on-year in the first half of 2021. While base effects will turn out to be less favorable in the second half, we expect a ramp-up of government spending given the need to use funds budgeted for the 2021 fiscal year ending September 30.

In addition, public spending on health and measures to support the economy should be increased. The $ 4.5 billion stimulus package announced in June focuses on supporting households, but we expect more plans to be announced in the coming months.

Given the good performance of the first half, during which it grew by 7.7% on average over one year, we have revised our forecast for GFCF growth upwards from 3.4% to 4.5% . We expect investment activity to slow over the next few quarters given corporate optimism.

Purchases of capital goods are expected to slow, as manufacturing output has slowed in recent months. In July, manufacturers reported strong external demand but continued weakness nationally, leading to lower equipment purchases and slack capacity.

As such, we believe private fixed investment may slow down in the second half of the year. That said, fixed public investment is likely to remain strong to support job creation and support domestic activity.


We expect net exports to contribute 2.6 percentage points to overall growth in 2021, after subtracting 5.3 percentage points in 2020. The recovery in exports was driven by strong demand for goods, which accelerated with the opening of the world economy.

We remain positive on the export sector as manufacturers continue to report healthy external orders and sustained global demand for automobiles, machinery and electrical equipment. However, we are seeing signs of a slowdown in China and supply chain constraints remain significant headwinds for the business.

In addition, the nascent recovery in international tourism is likely to stagnate or be significantly disrupted by the closures in place in July and August, although Phuket and Phangnga are still open to tourists. Thus, we forecast export growth of 10% in 2021.

However, our revised downward outlook for household consumption and early capital goods purchases in the first half of the year means that import growth will also slow to 6%.

We expect economic growth to reach 3.9% in 2022 as restrictions are gradually eased and tourism experiences some recovery. However, the economy is unlikely to return to its pre-pandemic trajectory, with more indebted private and public sectors likely to weigh on domestic demand in the long run.