BANGKOK: The news this week that exports had moved up by 3.35% before the outbreak of the coronavirus in China is positive. All now hinges on the course of the virus which caused the SET and world markets to drop by 4% on Monday as the global impact of a threatened pandemic and major disruption to the $14 trillion Chinese economy dawns on markets.

The Thai economy, buffeted by a budget crisis, drought conditions in agriculture and the economic devastation of the Covid 19 virus, is likely to see an economic contraction of 0.7% for this quarter if the current trend does not improve. This is according to the Krungsri Bank chief economist Somprawin Manprasert, who is predicting that Bank of Thailand will again lower interest rates to another record low of 0.75% when the bank’s monetary policy meets on March 25th.

Chief Economist with Krungsri Bank Somprawin Manprasert who has this week revised downwards his 2020 growth prediction to 1.5% but revealed a contraction so far in the first quarter. Mr Somprawin is also predicting a further interest rate cut when the Bank of Thailand meets on March 25th next. It comes in a week which saw a surprise uptick in exports for January and crew layoffs announced by Nok Air.

The leading economist expects the climate for the economy to improve in May but the window for Thailand falling into recession in the first half of the year has just opened wider. At the end of last year, most economists estimated the probability of this happening at 20%.

Thailand’s will be battling hard to avoid this prospect despite predictions from the financial analyst that the Thai economy should grow by 1.5% in 2020.

This figure would be the lowest in 6 years. At the moment, it looks like an optimistic analysis predicated on the now rising impact of the Covid 19 virus receding by May this year and a consequent rebound in tourism in the second half of the year.

SET fell by 4% on Monday

On Monday, the SET fell by 4% with figures showing that the loss of investment in equities for the last 12 months amounts to ฿34.4 billion with over ฿15 billion being offloaded by local investors.

Investors in the United States have awoken to the now endemic economic impact of the virus

The drop came as bourses around the world followed suit as investors in the United States finally got the message that the situation in China is still not back to normal and the virus now threatens to become a pandemic.

The curtailment of the virus outbreak in China, if we can rely on the figures, has been achieved at the expense of economic activity which in turn has already irreversibly fed itself into the world economy.

On Tuesday, Mr Somprawin of Krungsri Research in revising downwards the projected growth rate for the Thai economy to 1.5% growth in 2020 suggested that the Thai economy would contracts by 0.7% in the first quarter based on current data. 

Good news on exports for January

This is despite some good news this week as Thailand’s Commerce Ministry reported a surprise 3.35% rise in exports for January. This, as the ministry kindly pointed out, was before the Covid 19 virus took its toll after China could no longer keep a lid on the outbreak in Wuhan and locked down the city and Hubei province. 

The market had been predicting a 3% drop in exports but although there were some signs of a pick up in computer and technology exports to both China and the United States, the bulk of the growth can be explained by a spike in gold and oil exports. 

If oil and gold mark is excluded as well as weapons shipments, Thai exports contracted marginally by 0.17% for the month.

Baht has lost 6.7% against the US dollar

However, the export data for January is encouraging and has been attributed to the Phase 1 deal between the United States and China and increased economic co-operation between the two powers.

Another positive factor has been the depreciation of the Thai baht which has fallen back by approximately 6.7% against the US dollar since the end of last year and now stands at ฿31.72 to the greenback.

Difficult to predict the course of the coronavirus

The Krungsri Chief Economist, Mr Somprawin, this week emphasised how difficult it is to predict the course of this coronavirus outbreak.

While the Thai economy is also still suffering from a delayed budget disbursement and a drought that has hit farms, the threatening disease is the key economic driver right now.

He highlighted the importance of domestic consumer confidence to the Thai economy which since early 2019 has been battered by one storm after another including the US-China trade war to an overvalued currency.

Fears that the economic impacts will be severe

Despite an optimistic assessment from Thailand’s Tourism Minster Phiphat Ratchakitprakarn on Sunday that the virus would retreat with rising temperatures after mid-April, the industry now feels it will be at least 6 months before the industry recovers. 

This week, Thailand’s Nok Air laid off 50 staff including pilots and cabin crew.

Even if the health threat recedes, the economic impact and damage to confidence caused by the still escalating effects of this virus will linger.

Combating the outbreak in Thailand the priority

Thailand announced two new cases on Tuesday bringing the total number of cases to 37 with as yet no deaths and a 60% recovery rate.

 The country’s well-organised health network and preparedness are at the moment feeding into a sense of confidence among the public. 

The Tourism Minister on Sunday also highlighted this as a strong confidence builder for prospective tourists.

The containment of the virus must now be the priority that supersedes all others.

The situation in South Korea and Italy, both advanced societies, shows how quickly any country can move to the third and terrible stage of the epidemic. Such an eventuality would be particularly catastrophic for Thailand.

Further reading:

Tourism minister predicts higher temperatures will help to bring an end to the coronavirus threat

Jetstar cuts flights to Thailand from Australia as economic impact of the deadly virus threat still up in the air

Tourism minister gets real about tourism – arrivals down by 50%, pushes late night opening hours