Putting Thailand back on track economically after the Covid 19 virus emergency may be a far more difficult job than overcoming the health threat. Even if the country can get back to work by June, millions of jobs are predicted to be lost by a leading Thai business group even though its predictions are more optimistic than that of the Bank of Thailand or World Bank. There is also grave concern about the world economy and as yet unforeseen consequences of this catastrophe. The prospect of life returning to normal as it was before the outbreak is growing dimmer as the virus continues to spread with economic devastation worldwide while Thailand itself is closed for business.
Thailand has recorded its lowest level of consumer confidence since 1999 for March and when the figures for April emerge, it will probably be even more historic. A leading business body has predicted that even if the economy is reopened by June, that 6 to 7 million jobs will have been lost. This is despite the government’s planned ฿1.9 trillion package, announced by the cabinet this week. There are also real concerns about how such a vast level of expenditure from the public purse will impact the country’s long term financial stability. This coronavirus emergency has launched Thailand into a dangerous economic spiral even before it is clear how the health emergency is going to be brought to an end.
One of Thailand’s leading business groups has predicted up to 7 million may be made unemployed by June even if the current shutdown of the non-essential economy due to the coronavirus is reopened in the second quarter.
The prediction was made by Supant Mongkolsuthree, the Chairman of the influential Joint Standing Committee on Commerce, Industry and Banking.
His estimate was made even in the event of the Covid 19 emergency being brought to an end by the end of June.
Significantly also, this body is even still predicting growth this year of 2% while the Bank of Thailand and World Bank both have predicted a contraction in the Thai economy in the order of 5%.
Business leaders don’t like what they see
It comes as businesses throughout Thailand, reeling from the wave of shutdowns since the end of March, are now taking the time to assess their situation. By and large, while trying to be positive, they don’t like what they see.
On Thursday, the President of the Association of Thai Travel Agents, Vichit Prakobgosol, warned that firms across 11 sectors of the tourism industry have seen 300,000 people laid off and were having difficulty accessing support payments promised by the government.
Mr Vichit made the case for workers in the sector to receive 62% of their salary from the government’s social security fund.
Most firms have only excess cash flow to survive for two months says industry chief after survey
Mr Vichit referred to a survey conducted by his association which suggested that most firms have two months cash flow at a maximum to allow them to survive this crisis or otherwise they will be permanently shuttering their doors.
This would be catastrophic for any prospect of a revival of the tourism industry which accounts for 11 to 12% of the Thai economy and is a significant revenue generator for Thailand’s less well off.
Mr Vichit pointed out that the industry had already been suffering since the coronavirus emergency first emerged at the end of January from China.
His association was now focused on exploring the details of a ฿10 billion loan package being finalised by the Government Savings Bank for the sector as part of the government’s support package.
Lowest consumer confidence level in March since 1999 even before the tidal wave of shutdowns
On Thursday, the President of the University of the Thai Chamber of Commerce, Thanavath Phonvichai, unveiled another deep drop in consumer confidence for March following a rapid and consistent decline in the index over 13 months with other indices indicating massive declines in confidence in the future prospects of the country’s economy.
The consumer confidence index stood at 41.6 for March, the lowest since 1999.
It fell from 52.65 in February and there is every possibility it will fall again in April as the economic picture darkens as the Thai public adjusts to the reality of an emergency whose economic implications may be decidedly more long term than the health threat itself.
Consumer spending will be off by three to six months even with a quick recovery of the economy
‘In response to this, consumers will delay their spending by three to six months,’ Mr Thanavath outlined. He said that the closure of most shops, department stores and the tourism industry had severely dented public confidence.
Beyond that, there were still other legacy problems that have not been fixed or successfully addressed.
‘The other contributing factors are drought, the monetary policy committee’s cut in growth forecast and the drop in exports,’ he said.
Up to ฿1.5 trillion lost to the economy in the first 6 months, normal purchasing power at 25%
‘The Covid-19 coronavirus is expected to cost the Thai economy between ฿1 trillion and ฿1.5 trillion in the first half, with ฿700 billion coming from the tourism industry, ฿300 billion from the drop in consumption and the remainder from other sectors,’ Mr Thanavath revealed.
He also estimated that the average purchasing power for the normal Thai person during this lockdown period has been cut to 25% of normal.
Massive government stimulus package may come with serious long term implications and dangers
On Tuesday, the government announced a massive ฿1.9 trillion spending plan or ‘tonic’ for the economy following a cabinet meeting.
This is comprised essentially of ฿400 billion targeted at the corporate bond market, ฿500 billion for loan relief or soft loans to business and a further ฿1 trillion in income support payments.
The scale of this package is vast but there are some who have doubts over its implementation and after that, the long term repercussions of such massive government spending on Thailand’s financial stability with a banking system beset by a chronically high level of household debt.
US and Europe devastated by the virus
An aggravating aspect of the problem is that there is still no definitive guide to when the Thai economy will be relaunched.
A range of problems exists in this regard, not least the devastation in Europe, the United States and now the re-emergence of the disease in Japan and even in China which has still not regained its economic momentum.
China’s reputation and the whole concept of global supply chains has also been damaged and while this is a more long term issue, its implications will emerge quite quickly.
It will be the first order of business for many western countries, not just Trump’s America.
This crisis, now searing the consciousness of western populations with its death toll and massive economic impact, cannot be allowed to happen again. The world has changed.
European Union may have already failed
In Europe, this crisis has led to real concerns that the bloc may have already failed or at best, it is facing another existential crisis.
Its response to the health emergency itself has been lame and the public has learned that the impetus to action came from national governments and through bitter experience, that borders are critically important.
This is the end of the globalised era. There will be certainly more about this later.
The crux for Europe will come in putting together a package to address an economic crisis that is still right now expanding in magnitude and one that will eventually test the limits of solidarity even in Germany.
US response may well be more Trumpian than global as anti-chinese sentiment grows in the heartland
In the United States, anti-chinese sentiment is rising fast and will be difficult to contain once the worst is over. Americans, particularly in Trump’s heartland base, will want answers and to know who is going to pay.
Despite what proponents of a global response will say, what we will get will be re-energised vision of Trumpian economics and vision of a world economy with the United States at its centre and less focused on China. A divided world.
During 2019, the United States overtook China as the kingdom’s biggest export market and that trend will continue if the economy can be brought back to normal.
Biggest problem may be to halt the recurring outbreak of this virus after economies start back up
The key problem still remains how to overcome the virus and measures that will have to be put in place to prevent a recurrence or further outbreak.
Countries all over the world are trying to find a solution to mass testing.
In the UK on Thursday, there were reports of difficulties with a third of recorded patients who had recovered from the virus as researchers looked for evidence of antibodies.
The UK is trying to develop an effective testing regime for antibodies to give people the all-clear to return to work.
UK reports that a third of recovered patients had negligible evidence of antibodies or immunity
These ultimately are tests of the bloodstream where doctors can tell with some medical certainty, that the person has developed an immunity to Covid 19.
On Thursday, researchers suggested that there was a shortage of positive evidence from a third of recovered patients who had the disease which is disturbing since it is assumed that a person who survives the virus is consequently immune to it and fit for work.
UK government plans a massively scaled antibody testing regime to get workers back into the economy
The UK government had been targeting 100,000 such tests a day by the end of April but received a setback last week when a large number of test kits bought from China proved insufficient to the rigorous requirements and standards set by medical health experts there.
This was confirmed by Professor John Newton of Public Health England on Wednesday.
He said that none of the testing kits tried had been satisfactory.
‘We do not expect to be doing antibody tests by the end of April,’ Professor Newton conceded to MPs on the Commons science and technology select committee. ‘We’re not relying on antibody tests to make up that target.’
The US is pursuing a similar strategy as a way forward for devastated regions of the country so that their economies are brought back to normal.
Thailand must have a plan to restart the economy, stimulus spending is not an alternative to this
This leaves Thailand facing months of uncertainty as it attempts to restart its economy. This must be achieved sooner rather than later while balancing the the virus threat
In the meantime, the scale of borrowing required to fund the government’s stimulus package and decreased revenues may mean borrowing money commercially, from the IMF or even accessing the country’s foreign reserves.
While the kingdom’s government has healthy finances supported by a Baa1 from Moodys and a BBB+ from Fitch rating agency, the problem is that Thailand’s households do not.
Increasing government borrowing will bring with it perils in this scenario.
Somkid rules out IMF borrowing but the financial markets have altered to become more dangerous
Deputy Prime Minister Somkid Jatusripitak has ruled out IMF assistance. However, if the country finds the money, the massive expenditure required becomes risky for Thailand.
One way or another, despite the ratios or the adequacy of government borrowing limits, debt taken on by the government will impact the economy which is already creaking under household debt.
The government will also discover that the external financial market has been altered dramatically and negatively by the coronavirus which leading economists are predicting will certainly drive the world into recession or even a depression.
This depends on the extent of damage already inflicted under the surface by this coronavirus iceberg and how quickly the world economy can be refloated.
The huge stimulus package mustered for the United States and similar needs in countries around the globe means what we are witnessing here is a cataclysmic financial event.
This is not some cyclical aberration but a shock that brings with the need for immediate structural changes.
Some observers fear that the level of funding required in Thailand if the government relies heavily on fiscal supports may bring with it risks if higher inflation and a depreciation of the Thai baht.
World and Thailand facing a much more challenged future as world economies examine the bill
The hard reality, for now, is that this virus has made the world a much more challenging place and even as the kingdom and its government consider when it will get the country’s economy back on its feet, it must move both swiftly and carefully. Time is money.
It will take great skill, determination and leadership to even bring Thailand back to where it was just six months ago. The only hope might be that winds of a changed world may yet blow fair.