Fears are rising that the government may not have the resources to cushion the effects of the third wave of the virus, currently spreading within key population centres, if it is not brought under control. There are also indications that it may pose a setback to the kingdom’s plans to reopen to foreign tourists in 2021 which will leave the country in an even more fraught economic situation.
The third virus wave may be a calamity for Thailand if it manages to keep spreading within the 18 red zones or provinces which are also key centres of population and economic activity. The economic threat looming comes after more than a year of economic contraction. It now presents the government not only with another prospect of lost GDP but also danger as its budgetary room for manoeuvre is limited with a rising deficit, large numbers of asset-backed loans in the tourism sector that have been waiting for a strategically important asset warehousing scheme to be launched at the same time as reopening the country to a large number of foreign visitors again.
‘It’s too early to say.’
These were the words of Bank of Thailand senior director Chayawadee Chai-Anant even before the extent of this massive third wave became apparent, on Friday, April 9th as she warned the economy may have contracted in the first quarter and that conceivably, this year, 2021 could see another sharp economic setback for Thailand.
There are growing fears for the Thai economy as the scale of this third wave of the virus emerges and the government grapples with its implications.
Third-wave could see a sharp contraction in the second quarter of 2021 as it hits the economy’s heart
Senior economists are now openly suggesting that the second quarter of 2021 will see a sharp contraction of the economy as well as what is believed to be a contraction in the first quarter after the loss of the foreign tourism industry hit Thailand particularly hard in January and February 2021 compared to the economy’s performance in 2020.
Despite the scale of the disaster, the government has been trying to minimise economic disruption where possible, even though the restrictions announced over the weekend by the Centre for Covid-19 Situation Administration (CCSA) for the 18 red zone provinces will impact that area of the country, accounting for 50% of the economy, hard.
This virus wave has struck at the heart of the kingdom’s GDP generating capabilities particularly Bangkok and surrounding provinces as well as the key foreign tourism hotspots.
New restrictions come into effect in Thailand from Sunday as PM prioritises finding vaccine supplies
Schools have been closed for two weeks with large gatherings banned as well as new, limited opening hours for convenience stores and other commercial outlets.
‘This is to keep businesses alive,’ said Dr Taweesilp Visanuyothin as he announced the new measures.
They come into effect from Sunday and according to the National Security Council chief, General Natthapon Nakpanich, Prime Minister Prayut Chan ocha is prepared to take further steps.
On Sunday, it was reported the Prime Minister has urged key agencies to locate more vaccine doses from American agencies and from Russia whose Sputnik V vaccine is reported to be 91% effective according to a peer-review study published in the UK medical journal The Lancet.
‘I’ve told the Government Pharmaceuticals Organization and the Food and Drug Administration to coordinate and facilitate them,’ General Prayut said.
Over the weekend, Thailand had yet to reach the level of 1% of the population having received the first dose as the figure of 605,279 or 0.87% of the official population was released on Saturday.
Health minister says 3rd wave could be controlled within two weeks with the public’s co-operation
The Minister of Public Health, Anutin Charnvirakul, has meanwhile urged the public to cooperate and talked about the ability to bring the third wave under control within two weeks depending on public co-operation
This could be a bit optimistic.
The current situation is particularly dire for the government which had a near ฿500 billion deficit in the opening months of 2021 and which is limited in its borrowing capacity despite its relatively low debt to GDP ratio and the urgings of more progressive economists.
Even before the third wave broke out and as its extent is becoming evident, the consumer confidence index had dipped in January recovering in February with overall consumer spending still off by 3.3%.
Consumer confidence was already slipping
Consumer spending may now drop further and by at least ฿100 billion if a new coronavirus outbreak lasts for two months, possibly sinking the economy in the current quarter, the President of the University of the Thai Chamber of Commerce (UTCC), Dr Thanavath Phonvichai, said earlier in the month.
Consumer confidence fell back to 48.5 in March after a rise to 49.4 in the previous month, according to a survey by the institute.
At the outset of this new wave, Dr Thanavath had already accepted that it could lead to a second quarter of contraction in 2021 and predicted at least a loss of ฿100 billion in consumer spending.
Hopes for a quick rebound but Thailand could be facing a second year of sharp economic contraction
At a press conference, the economist suggested the government and the economy could rebound if the third wave was seen off early.
‘Sentiment is expected to drop for at least three months before picking up if the Covid situation eases quickly,’ he said.
While Dr Thanavath conceded that a second-quarter contraction may result, he suggested that growth of 2% to 2.5% could be achieved this year if the situation was brought under control within two months.
The senior director at the Bank of Thailand, Chayawadee Chai-Anant has, on the other hand, warned that the threat posed by the virus and its more infectious variants could leave Thailand facing another, even sharper contraction this year if the vaccine rollout fails to take off and if the virus continues to wreak havoc with business operations and consumer confidence.
Reopening of Thailand to tourism now in jeopardy
There is also now a real fear that the planned reopening of the kingdom to foreign tourists from October 1st with a July 1st reopening in Phuket, has been placed in jeopardy.
This was confirmed on Saturday by the Minister of Tourism and Sports Phiphat Ratchakitprakarn who cited a lack of vaccines as a key reason.
Current Finance Ministry projections are for 5 million visitors to be seen in Thailand this year while the Bank of Thailand has been suggesting a figure closer to 3 million.
Latest wave is hitting key population centres
Respected economic thinkers are beginning to express alarm at the situation that is developing with some suggesting that this third wave has the capacity to inflict far more than the ฿100 billion loss estimated at the outset in recent weeks due to lack of consumer spending.
They point to the level of fear that this third wave is generating as it hits key population centres and areas of economic activity.
Concern is also being expressed about the government’s ability to address the third wave without recourse to excessive further borrowing or exceeding a debt limit which it is by law prohibited to do.
It is currently thought that the government debt level is at 53.3% of GDP which is, in fact, below the 57% forecast last year.
However, it is facing higher current deficits due to a depressed economy with higher burdens and a legal borrowing limit set at 60% of GDP.
Asset warehouse scheme to refloat the tourism industry is critically important to the economy
The government had been planning a strategically important asset warehousing scheme to relaunch the tourism sector and provide support to the thousands of borrowers in the industry and their bankers.
Officials work on asset warehouse plan to relaunch the tourism industry in tandem with reopening (click here to read)
The estimated cost of this scheme was ฿100 billion. In addition, the government had earmarked ฿400 billion to ฿500 billion for soft loans to the business sector.
This is part of the ฿1 trillion fund organised last year to protect the kingdom’s economy and to allow for a relaunch this year.
The budgetary pressure now on the government, on a day to day basis, for the next 8 months means, it will have little extra to offer the population or business concerns reeling from the effects of the third wave.
It could well find itself also constrained by a reduced tax take from a still contracting economy.
At the same time, the current situation will further exacerbate Thailand’s chronic household debt problem estimated at 90% of GDP at the end of 2020.
The Bank of Thailand Governor, Sethaput Suthiwartnarueput, in October last year, identified this as a key concern amid raised unemployment numbers caused by the first wave.
Failure to revive foreign tourism this year will see permanent loss and further structural change
The third wave leaves the economy with a heightened prospect of foreign tourism not rebounding this year.
This will spell heavier economic damage to the already ravaged sector and may make the planned asset warehousing scheme impractical. This may see more permanent closures and fire sales in an industry that has already suffered massive structural change.
The delay caused by this third wave will also aggravate the financial losses incurred by banks and lenders caused by a collapse in asset values.
While many industry insiders suggest that it will take three years for things to fully recover, it may also be the case that we may never see a return to the halcyon days of Thailand’s tourism sector that grew from the 1960s on the basis of rising demand and the popular expansion of air travel worldwide which this pandemic has decimated and, in the longer term, left a question mark over.
Third-wave may be just as devastating as the first economically with a larger number of infections
Some economic thinkers are worried that this wave may be just as devastating as the first wave economically as it is hitting an already damaged economy in addition to the geographical spread of the hotspots which has seen the virus targeting large population centres which will lead to the public quickly curtailing its economic activity.
We have already seen this virus wave hitting the Royal Thai Police and other key state agencies with a sharp spike in hospitalisations.
The government is facing a tight budgetary situation and may not, this time, be able to step in to provide assistance.
Economists have estimated the second round of the virus cost Thailand ฿200 billion while the first wave cost it ฿900 billion.
Economic crisis bigger and more dangerous
The cost of this massive third wave might be anywhere between these two figures but with new restrictions announced on Sunday and rocketing rates of infection, things look quite bleak.
We are now entering a situation where knock-on secondary economic effects may become a factor and another ball for the country’s economic planners to juggle.
If the country fails to ramp up its vaccine campaign and the growing third wave gets worse, leading to further economic retreat, Thailand may be left facing a crisis even bigger but also more dangerous than last year.