The current rocky economic road could be longer than at first thought as prospects for 2021 have begun to evaporate while the government continues to do battle to recover economic growth, even in the short term, in a ‘best form of defence is attack’ strategy to avoid another massive contraction like that seen in 2020 and up to the first quarter of 2021.
The Bank of Thailand Governor Sethaput Suthiwartnarueput, on Thursday, warned that the Thai economy was facing a prolonged crisis to recover GDP growth but that there was no danger of a collapse due to the strength of the kingdom’s financial system and long term account surpluses. It comes as the current third wave surge, particularly in Bangkok, has shaken the confidence of the public with the kingdom recording its third-highest day of infection and 19 more deaths.
The Bank of Thailand Governor Mr Sethaput acknowledged on Thursday that this current economic crisis is more severe than the Asian Financial Crisis of 1997 due to its prolonged nature but has given assurances that the fundamentals of the Thai economy are both strong and capable of withstanding it.
He also made it clear that he did not see the current threat created by the devastating third wave of Covid-19 disappearing quickly.
‘We had thought this crisis would be severe but short, but it’s clearly shown that it won’t end quickly,’ he told his audience on PPTV, a digital TV station in Bangkok.
Smaller business concerns decimated by this crisis
He said this current crisis had decimated smaller business concerns and more vulnerable households but that the economy remains strong due to its robust export and manufacturing sectors as well as a strong financial system and environment.
A recent Japanese analyst firm in Tokyo identified consistently strong current account surpluses, driven by exports but even more so by foreign tourism receipts and investments over previous decades, which have placed Thailand’s financial system in a very strong position to withstand any form of external pressure or shocks.
This was referred to by Mr Sethaput who said that despite the setbacks for key parts of the kingdom’s economy it would remain stable, at least, financially.
He said there was adequate financial liquidity in the system although it may not be distributed evenly at this point.
Return to substantive growth is questionable
Mr Sethaput did however warn that any return to any substantial economic growth this year under current conditions and with the country’s record level of household debt was questionable.
The bank’s influential Monetary Policy Committee which met on Wednesday kept interest rates at a record low of 0.5% but warned that the growth rate of the economy would be hindered by lower foreign tourism numbers which are estimated now to be below 3 million visitors for the year.
‘Best form of defence is attack’ strategy
The government is also trying to avoid a sweeping national lockdown such as we saw last year after the combined GDP contraction rate in 2020 and the first quarter of this year came to just over 7%.
This can be described as a ‘best form of defence is attack’ strategy being pursued by the Finance Ministry with the support of the Bank of Thailand which centres on keeping exports flowing out of the kingdom and reopening the mass foreign tourism market as soon as possible.
Moves to reopen to foreign tourism still being pursued but the virulent third wave is a setback
Moves to reopen foreign tourism have been hampered by the virulent and deadly new wave of infection driven by the more infectious B117 or British strain of the Covid-19 disease.
On Thursday, the governor explained that while foreign tourism accounts for 20% of employment in Thailand and while an opportunity had existed this year with successful vaccination campaigns around the world to reopen the country, this is now on hold until the kingdom’s own vaccination campaign achieves its goals.
Exports could be up by as much as 11% but overall growth projections have been paired back to between 1 and 2% as the third wave embeds itself
On the other hand, he pointed out that both manufacturing and exports had been left unhindered by the latest wave, a point also made by the bank’s Monetary Policy Committee on Wednesday when it highlighted an upside in exports which it predicted to rise by over 11% this year.
The Finance Ministry has recently cut back the projected growth rate for Thailand to 2.3% although other financial analysts, this week, were already saying the outlook right now is in a range of 1 to 2% as the effects of the third virus wave deepen.