Coronavirus impact on the Thai economy begins to bite harder as current account surplus turns to a deficit in April as tourism stops. Predictions of a double-digit economic contraction in the 2nd quarter even as the Thai economy had already entered recession in the first three months of the year. Exporters, economic forecasters and the Bank of Thailand this week have expressed concern and warn that it may be years before the country returns to the pre-pandemic economy.

Thailand’s economic hole because of the coronavirus crisis has begun to reveal itself. This week, the Bank of Thailand raised some red flags including the country’s balance of payments performance in April due to a contraction of normal commercial exports and the complete cessation of inward travel to the country which has killed off foreign tourism. The country, which had already seen a GDP contraction in the first quarter, is certainly facing a double-digit drop in output in the second. One leading economic forecaster has now warned that it is unlikely that the kingdom will return to pre-pandemic levels within a year.

Assistant Governor with the Bank of Thailand, Titanun Mallikamas, reveals a serious deterioration in Thailand’s current account in April and fears that the Thai economy may be particularly vulnerable with a rising baht and the closure of the foreign tourism industry since the beginning of April.

Another top official at the Bank of Thailand has warned of a bumpy road ahead for the Thai economy as he revealed that the country’s current account balance for April when gold is excluded could be as high as $3.1 billion in the wrong direction. As it stands, the figure is coming in at a $700 million deficit.

This is a complete reversal of fortune compared to last year and the single biggest contraction in 20 years.

Concern about the loss of tourism earnings

The red flag on Thailand’s economic prospects was raised by assistant governor Titanun Mallikamas on Wednesday. 

The top bank official expressed concern over the closure of the kingdom to incoming tourism and the tourism sector in general.

He warned that rising world oil prices as the global economy powers back up, coupled with a block on foreign tourist arrivals could see strong negative pressure on Thailand’s balance of payments going forward into 2020.

Bank has warned this week that Thailand faces upward pressure on the baht caused by gold trading

The bank has already expressed fears that short term plays in the financial markets and gold buying could also continue to prompt upward pressure on the Thai baht which, since May 3rd, has gained 2.7% against the US dollar.

On Wednesday, Mr Titanun promised a further briefing from the central bank on this by June 24th including a revised prediction on economic performance for this year, the inflation rate and the trajectory of the kingdom’s current account which had been running at a surplus since 2014.

Exporter group not optimistic despite a surprisingly strong performance in some areas for April

The concerns of the bank official are also being felt by a leading exporter group, the Thai National Shippers Council, which is not optimistic in its outlook for 2020 despite some surprising data and improvement in the export of agricultural and related products in figures reported for March and April this year.

This was led by increased exports from Thailand to China and Japan in April with shipments rising by 9% and 9.8% respectively for these key trade partners.

Current account deficit for April tells the story

However, when figures for gold, oil and armaments were stripped out, the value of Thailand’s exports for the month showed a contraction of 7.5% which helps to explain the disastrous balance of payments performance for the month.

It may also be no coincidence that this sudden reversal of fortune coincides with a complete halt to inbound foreign tourists and passengers.

Shippers Council warns of growth in negative factors in 2020 with rising jobless numbers in key markets

The influential and usually accurate Thai National Shippers’ Council, led by Chairwoman Ghanyapad Tantipipatpong, on Tuesday, warned that the Thai economy, driven by exports, was beset by a growing number of negative aspects and forces.

‘Despite exports rising 1.2% year on year to $81.62 billion in the first four months, the growth was driven largely by gold, oil and weaponry,’ Ms Ghanyapad explained. ‘Excluding gold, oil and weaponry, exports still fell by 0.96% in the period.’

She said she was concerned by high levels of unemployment in the EU and the United States which will dampen purchasing power and demand for Thai products. 

She also disclosed that she was worried at rising tensions between the US and China driven by differences over Hong Kong and the controversy over the origin of the coronavirus.

K-Research predicts a 6% contraction based on 16 million foreign tourist arrivals for 2020

Meanwhile, Nattaporn Triratanasirikul of K- Research is predicting a 6% contraction of Thailand’s economy in 2020. 

This is higher than the 3 to 5% predicted by the World Bank and lower than other forecasts of just under 7%.

The economic forecast unit based its projection in the hope that Thailand can still retain 40% of foreign tourist arrivals from last year when it hit a record of 39.8 million.

The figures are based on current predictions by the Tourism Authority of Thailand which has predicted somewhere between 14 and 16 million visitors at the upper limit.

These figures were already greeted with scepticism by Thailand’s Tourism Minister Phiphat Ratchakitprakarn in early May. 

Slow return of tourists to Thailand

Indeed, recent comments on Thailand’s new approach to tourism by the Governor of the Tourism Authority, Yuthasak Supasorn and Thai Prime Minister, Prayut Chan ocha, strongly suggest that tourism may not return to Thailand until the fourth quarter and even then, it will be constrained by health regulations.

A reported re-opening of Thailand to international flights on July 1st, based on comments made by a senior government official, has yet to be decided but even if it goes ahead, it is likely to be highly restricted and more concerned with accommodating the needs of non-tourists seeking to return to the kingdom by permission.

So far, up to April, Thailand had received 6.7 million visitors before the outright ban was imposed by Thailand’s Civil Aviation Authority overnight on April 4th last.

Standard Chartered says the economy will contract by 13% in the second quarter, already in recession

At K-Research or Kasikorn Research Centre linked with Thailand’s Kasikorn Bank, they are predicting what they term a double-digit contraction in Thailand’s economy for the second quarter of the year. Standard Chartered Bank has set this figure at 13%. 

The research unit is following this by a prediction of further single-digit contractions in both the third and fourth quarters.

The Thai economy had already contracted by 2.25% in the first quarter following a revised 1.5% loss in the last quarter of 2019.

The first quarter was already the largest contraction in Thailand in recent times going back to the severe flooding in 2011.

Country may take years to recover

The bank economic forecasting unit is suggesting that it will take Thailand certainly more than one year to recover from this economic catastrophe. 

They are particularly concerned at the large levels of unemployed in the kingdom as a result of this economic contraction and the serious damage inflicted on the tourism sector which is an important economic driver since it is labour intensive.

Not concerned by the government’s plan to borrow more money as bank deposits surge

The economists at the unit, however, are not concerned yet by the massive proposed surge in borrowing by the Thai government to fund an income and economic support programme during this emergency which will take it to the limit of the 60% threshold specified by Thai law.

Indeed, the K Research team notes that Thai banks have been the recipients of ฿500 billion in a surge of deposits because of this crisis as investors take flight from riskier markets.

The question now is how deep will this economic hole turn out to be and how long will Thailand take to climb out of it in an increasingly uncertain and challenging world.

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