As the government pushes ahead urgently to reopen Thailand’s foreign tourism sector, the economy is also facing headwinds both domestically with economic consumption yet to get back to normal and exports expected to contract by 15% this year. The government’s goal is to now engineer even the beginning of a recovery with further borrowing, a robust banking system and hopes that exports will begin to tick up as the world economy slowly recovers from the most severe contraction in a lifetime caused by virus lockdowns.
Thailand could be facing a more severe economic contraction in 2020 then had been first thought and is facing at least a U shaped recession as any economic recovery thus far has been anaemic with a damaged export sector and foreign tourism completely stalled. This is coupled with a domestic economy where high unemployment and challenged incomes represent a severe headwind. This week, the Bank of Thailand launched an initiative for borrowers with home loans allowing them to consolidate their high interest personal and credit card borrowings into a new lower interest rate loan to help them manage better during the current period of economic adversity.
The Thai central bank has launched a new initiative to offer Thai household borrowers an option to reduce the interest rate paid on personal loans and credit card payments by taking out a combined loan with their financial institution at a reduced rate.
Details of the scheme, which is open for applications from the 1st of September 2020, were given on Thursday by Bank of Thailand Assistant Governor, Thanyanit Niyomkarn.
Scheme for home loan borrowers allows for an interest rate of as little as 5% on debt now at 25%
She pointed out that, currently, many borrowers are paying between 16 to 25% per annum on such loans which can now be reduced to a rate of 5.5% to 8.5%.
The move by the central bank comes as it is emerging, according to a leading economic research agency, that Thailand is currently at the bottom of a U shaped recession because of the Covid 19 crisis.
Despite the reopening of many business concerns, serious problems remain. The population’s working income has fallen sharply. The normally robust Thai labour market is experiencing a hitherto unknown level of unemployment as small businesses, newly reopened to the ‘new normal’ economy, are failing.
This means doors being shut and low paid workers, normally a handful at a time, finding themselves either without an income or having to adjust to a lower level. The scale of this is masked somewhat by official figures because much of it is within the kingdom’s massive informal or black economy.
The new scheme announced by the Bank of Thailand will be available from all retail banks subject to key terms and conditions.
The new loan facilities will apply from September 1st until the end of December 2021.
This scheme, of course, only applies to more well off Thais with documented employment and who have home loans that were not in arrears before the virus crisis.
Economy forecast to contract by 10% – K Research
K Research or Kasikorn Research Centre, the analysis arm of Kasikorn Bank, this week, raised its estimate for the level of contraction that the Thai economy will suffer in 2020 to 10%.
The current central bank estimate is 8.1% and the government’s economic team, including Minister of Finance Predee Daochai, a former President of Kasikorn Bank, have signalled the target this year for their efforts is to rein in the level of contraction to 7.5%.
The findings by K Research were presented by Chairman Dr Charl Kengchon and Deputy Managing Director Thanyalak Vacharachaisurapol.
Business borrowing from banks is up sharply as firms try to raise liquidity to counter Covid 19 losses
The economic research unit has noted that bank borrowing among the retail and commercial banks has risen this year, in line with the government’s policy to support the business sector with loan schemes, by 6 to 8% compared to 2 to 3 % last year as firms move to enhance their liquidity in response to the downturn.
The domestic economy has not returned to normal despite the reopening process being complete and an encouraging pickup in economic activity.
Thailand is facing a severe contraction in exports this year which could be as high as 15% while foreign tourism earnings have dried up.
In the meantime, this latest K Research report says that there are severe difficulties in the food and beverage industry, the electrical business as well as the hotel and hostelry sector.
Government must spend again on stimulus as baht remains high but lower than last year
The economic experts suggest further government stimulus and while they acknowledge that there is a significantly rising government debt, they conclude that such a course is necessary to prop up the economy.
There is however a worry that the current condition of the economy is not improving quickly and could be complicated further by growing political threats with the constant risk of a second wave of the Covid 19 virus.
There is also the ongoing concern about the value of the Thai baht which weakened sharply but only briefly at the height of the Covid 19 threat but has recovered ground again against the US dollar.
The baht, on the other hand, is lower at this point by 1.75% than what it was last year and 3.75% lower than its strongest point when, just before the new year, it went below the significant ฿30 to the dollar mark.
Must take a risk and open the kingdom to foreign tourism to preserve the sector’s infrastructure
Thailand’s government ministers have been urged by senior business leaders including the Chairman of Charoen Pokphand Group, Dhanin Chearavanont, the kingdom’s richest man, that it must take risks and is moving towards a partial reopening of the foreign tourism industry with plans to extend this if all goes well.
The fear is that without progress here, the country’s tourism infrastructure could at least partially collapse.
The Tourism and Sports Minister, Mr Phiphat Ratchakitprakarn, has targeted two million visitors from September 2020 until March 31st 2021.
This initiative and the possibility of a pick up in the export market as countries worldwide simultaneously come to the conclusion that further widespread economic lockdowns are simply not an option, could see some revival of exports.
Nonetheless, continuing US Chinese tensions will limit a return to anything like the level of exports seen since prior to early 2019.
This was when Thailand’s period of economic decline set in, well before the virus.
Engineering the beginning of a recovery
The K Research economic analysis unit, this week, described the task of the Thai government right now as trying to engineer the beginning of an economic recovery through stimulus measures so that ‘the economy can emerge from the doldrums sooner rather than later’.
The unit points to the strong balance sheets and expert management of Thai banks, at this time, as a key pillar and engine of the economy moving forward.
There is some concern about rising bad debt levels and K Research says that the banks must begin to monitor the increased level of nonperforming loans which ticked up in recent bank earnings reports to 3.5%.
A more practical approach to investment and job creation in the Eastern Economic Corridor
Last week, the new Deputy Prime Minister and Energy Minister, Supattanapong Punmeechaow, who has oversight of economic matters and at the Ministry of Finance, described the goal of the government this year as keeping the economic contraction beneath 7.5% and restoring the Thai economy to attain growth in 2021.
He indicated a policy of close public-private partnership and cooperation between the government and private firms to protect jobs and also suggested a more realistic investment policy and approach to recruiting industry to the government’s flagship Eastern Economic Corridor project in Rayong, Chonburi and Chachoengsao.