Figures show exports are down sharply with tourism halted and Thai household expenditure off by 15.1% for the first four months. The Bank of Thailand’s economic policy chief says that only government expenditure is now propping up economic activity with the full scale of the damage set to emerge in the second quarter as consumer confidence and business confidence hit at a historic low.
Thailand’s economy has been kept above water by government expenditure in the first four months of the year as the tourism industry has been halted and exports have dropped sharply. The outlook for the remainder of the first half of 2020 is even grimmer. Households throughout the kingdom have cut back sharply on spending while government expenditure in the first four months increased by 29%.
One of the Bank of Thailand’s most respected economists and the senior director for policy and economics, at the institution, has warned that only government spending is now powering the economy which in April registered historic lows across all fronts.
Don Nakornthabm has also warned that future months do not hold out much hope for improvement as exports continue to plummet following an official 3.3% contraction in April which, when gold was extracted, revealed a nearly 16% drop in the value of goods and merchandise shipped from Thailand.
No exports miracle for April as world trade slows down leaving merchandise exports off by 16%
Earlier this month, there were some suggestion of what would have been an economic miracle with reports of a rise in exports, driven by a range of products such as medical supplies, over last year’s figures which was in itself particularly disappointing due to the US-China trade war.
The steep drop in exports, now confirmed for last month, was due to the disruption in Thailand itself caused by lockdown measures but also a worldwide interruption to supply chains as the Covid 19 virus from China took hold around the world.
The outlook for the coming months is that the steep fall in Thai exports will continue.
Exports of motor vehicles down by 49%
While many economists are hoping that a resumption of economic activity in May in many western countries will see supply chains picking up the slack, there is deep unease at the damage that has been inflicted on all economies by the radical lockdowns deployed by nearly all countries except for Sweden.
In western countries, this has seen a sharp fall in consumption and ironically, in some countries with social security, a rise in savings. It has witnessed populations jettisoning their normal lifestyles.
Thailand’s exports of cars and motor vehicles, an already hard-hit sector even before the virus outbreak because of climate change policies, saw exports drop alarmingly by 49%.
‘Thailand’s export contraction is expected to deepen over the next one or two months, crippled by tepid global demand because of the outbreak,’ said Mr Don.
Zero tourism arrivals for April, May and June
The situation regarding tourism is even more devastating.
In April, there was no tourism into Thailand with the only foreign tourism activity being residual expenditure of foreigners already trapped in the kingdom during a lockdown of the tourism sector itself.
In April 2019, the kingdom recorded 3.2 million visitors. The ban on inward passenger flights and other restrictions will also see Thailand record zero arrivals for May and June representing a devastating loss of income to the Thai economy.
External tourism accounted for 12% of GDP in 2019 but it is particularly effective at creating employment and distributing wealth in the kingdom. It represents the income source for 20% of the Thai population.
Impact on tourism felt from the end of January
Even before April, the impact of the coronavirus disaster made itself felt causing the closure of many tourism businesses including hotels and restaurants. Strong concerns about the virus were first raised at the end of January.
Tourism numbers for the first four months in total including April, showed a drop of 52.5% with the vast majority of these arrivals coming to Thailand in January and February.
The number of visitors was nearly 6.7 million. This means that tourist numbers, for the first three months alone, were down nearly 30%.
Mr Don expressed deep concern for hotels, restaurants, travel and other tourism-related enterprises.
Fears that anywhere from 7 million to 14 million Thai people could be left without employment
In the first four months of the year, there were 6.69 million international arrivals, a decrease of 52.2% from last year.
The lockdown, at its height, left nearly 30 million Thai people out of work but it is still feared that the numbers without a viable income, even after the easing of measures to be completed by the end of June, will be 7 to 14 million.
Sharp drop in domestic consumption over the first 4 months of 15.1% with confidence at an historic low
This has been reflected in the Bank of Thailand reports which is also showing a sharp drop in domestic consumption.
Households have cut back on expenditure for the first four months by up to 15.1%.
There is some hope that with an easing of restrictions and with government income support, the situation may improve but the Bank of Thailand does not expect this month to be better than May 2019.
Consumer confidence in April and other indices reflecting business sentiment, understandably, hit an all-time low.
Staggering rise in claims on the social security fund is a key cause of concern for bank official
The senior economist at the bank has indicated that he is worried to see rising jobless claims from Thailand’s social security fund.
In April, 2,406 Thai firms announced the suspension of their businesses under Section 75 of the Labour Protection Act. This was a rise of 540% over the previous month.
Similarly, with jobless claims, the number was up by 468% to 465,218 people.
The concern for economists is that this may indicate structural damage to the Thai economy being caused by the crisis.
Economy has become dependent on government expenditure at this moment with plans to borrow
Mr Don observes that the Thai economy is currently dependent on Thai government expenditure to keep itself above water.
The government saw an increase in expenditure of 28.9% in April which is somewhat moderate given the catastrophe the country is facing and when compared with western countries.
Plans are afoot to borrow up to ฿1 trillion to fund continued income support which may both alter the nature and health of Thailand’s economic position.
‘Several key economic data contracted to record-low levels in April because of the pandemic. However, government spending was the only one factor supporting the economy,’ the Bank of Thailand economist said.