Public confidence is key as Thailand’s economy flies into 2021 on one engine without foreign tourism. A steady, underlying recovery, seen since the third quarter, is buoying hopes that the trend can continue into the new year with the prospect of an upside if the Covid-19 virus emergency is finally brought under control globally.
Thailand’s economy looks set to grow at a moderate pace of between 2.5% and 3.3% in 2021 as it makes gains with increasing exports and public investment but without its once all-important foreign tourism sector. Financial analysts are, currently, even projecting that the kingdom will see a 41% drop in foreign visitors next year as Tourism Authority boss, Yuthasak Supasorn, sees no clear return to mass tourism from foreign countries on the cards until, at least, the third quarter of next year and then at lower numbers.
Top Thai financial institution, Krungsri Bank, is predicting a recovering economy for 2021 which will be primarily driven by export growth and increased public expenditure from the government purse.
This week, the bank predicted that Thailand will see modest growth in 2021 and significantly, suggested a lagged reopening of the country to foreign tourism. The bank is forecasting a 41% reduction in tourists in 2021 compared to 2020 when in the first three months, up to 6.7 million travellers arrived from all over the world. This is projected at 4 million towards the end of 2021.
It will be 2022 before tourism is back to normal in Thailand and even then, lower than 2019
The figures correspond with comments from the Governor of the Thai Tourism Authority, Yuthasak Supasorn, this week, who said it would be 2022 before anything like normal tourism would return to Thailand.
Mr Yuthasak said it is difficult to predict what will happen in 2021 and endorsed the view of the World Tourism Organisation which is suggesting that it will be the third quarter of next year before the industry begins to recover from this unprecedented setback.
Even so, Mr Yuthsak has gone on record to suggest that Thailand will only see 80% to 90% of the record level for tourism receipts seen in 2019 when things finally return to normal in 2022.
IATA chief sees some hope in Chinese trend
The Director-General of IATA, the International Air Transport Association, Alexandre de Juniac, also said this week that it will be 2022 before foreign tourism recovers and predicted that business travel on airlines will take even longer, well beyond 2023 if at all, due to new technological innovations and business cultures. This has implications for flight costs and tariffs moving forward.
However, Mr de Juniac was somewhat optimistic that recovery will take place. He said that he was encouraged that the lifting of flight restrictions on internal travel in China, in recent months, had shown strong evidence of pent up demand with flight numbers tipping 2019 levels in a short time.
2020 economic contraction predicted at 6.5%
Meanwhile, Krungsri Bank, in line with other financial analysts, is predicting that the contraction in the Thai economy could be as low as 6.5% in 2020 with the decline in exports falling to 7.5% after a stronger than expected third-quarter performance.
The bank is also pointing to lower levels than expected for the contraction of private consumption for the year in Thailand as consumer confidence is slowly returning even with the kingdom’s borders closed.
US trade protectionism will continue for the medium term but there are prospects for regional growth
The potential availability of three vaccines and more in the pipeline, which will be rolled out shortly, and the strengthening prospect of the US avoiding a constitutional crisis with President-Elect Joseph Biden expected to take power in January, has seen funds moving back into emerging markets.
Most Thai economists foresee a continuation of America’s trade protection policies under the Biden administration, at least in the medium term, but see a significant upside in regional trade opportunities for Thai exporters especially with the anticipated triggering of the Regional Comprehensive Economic Partnership or RCEP concluded mid-month and which is anticipated to become effective next year.
It is the largest free trade deal in history and will see harmonisation between ASEAN countries and other key countries in the Asia Pacific including China, Japan, South Korea, Australia and New Zealand.
The Thai baht, this week, maintained a constant level with the US dollar although many analysts fear it could still strengthen further.
Political unrest on the streets is a dampener on the Thai economy’s prospects damaging confidence
The bigger problem for the economy, according to Kalin Sarasin, the Chairman of the Thai University of Commerce, is the impact of the continued political unrest which continues to rumble on.
The ongoing protests have seen some stormy events in Bangkok in the last two weeks.
Street protests, historically, have been shown to create economic doubt among the Thai public which has traditionally impacted consumer confidence. In the past, economic growth rates have been dampened by 0.6% to 1% driven by the phenomenon.
The disruption and negative international coverage of the events on the streets also negatively impinges on inward investment into the kingdom.
Shortage of manpower for loading export cargoes
Mr Kalin also drew attention to another peculiarly Thai problem.
This is a shortage of manpower to load export container cargo at the ports. Thailand is currently experiencing a shortage of migrant labour and many of those left unemployed in the tourism and small business sectors of the economy throughout the kingdom are unsuited or unwilling to undertake this kind of work at the pay levels provided.
The business chief also said that a shortage of cargo containers for export merchandise was creating higher costs for exporters already concerned about the strengthening baht.
Next year has the potential for an upside as Krungsri Bank’s top economist predicts 3.3% growth
Nevertheless, the contracted economy moving forward into 2021 has the potential for an upside such as the lower base in the second quarter because of this year’s extensive shutdown and an expected recovery in the worldwide demand for goods and merchandise as we move into 2021.
The Chief Economist with Krungsri Bank, Somprawin Manprasert, says the bank is predicting a 2.5% to 3.3% gain for 2021 but had reservations.
‘We see challenges ahead with domestic headwinds. Tourism recovery is lagging behind other economic growth drivers, leaving large excess capacity in several services sectors. Job losses will continue to weigh on income and consumer spending,’ he said.