The Thai government is facing ever more dismal economic prospects as an export sector leader warns of calamity if firms continue to lose hundreds of billions of baht every month, despite an impressive gain in the opening five months of 2021. This is a hammer blow to ministers trying to steer the kingdom towards some semblance of economic recovery this year as exports represent nearly 60% of the kingdom’s GDP. This week also, it looked increasingly certain that foreign tourism will be off by over 99% with just over 40 thousand visitors in the opening five months of the year being confirmed by the Minister of Tourism and Sports, Phiphat Ratchakitprakarn who also revealed diminished prospects for the Phuket Sandbox scheme despite what can be considered a moderate success in July.
The Bank of Thailand, on Wednesday, downgraded the economic outlook for the kingdom’s economy which is now being battered by headwinds on all fronts. Export sector leaders are warning that producers are losing enormous sums of money and are ‘stressed’ due to the devastating Delta virus wave which took off in June. The prospects of any significant GDP growth appears to have vanished with an increased likelihood that Thailand’s economy will shrink again this year after last year’s record contraction. There is also growing concern about the government’s ability to deal with the situation without resorting to a public debt level well beyond the legal limit set by a 2018 law but, which, in recent weeks, top officials have argued can be breached by the Finance Ministry if it is deemed necessary.
Thailand’s economy could well be on course for a second year of economic contraction after the Bank of Thailand, on Wednesday, downgraded the GDP outlook further and projected only 0.7% growth for 2021. It follows last year’s record contraction of 6.1%, the worst in over twenty years.
‘This round of the pandemic will affect the economy both this year and next year. The impact is greater than what we have forecast and the downside risk remains significant,’ Titanun Mallikamas explained in a live social media briefing using Facebook Live.
Monetary Policy Committee meeting holds interest rates but downgrades GDP growth forecast to 0.7%
The Monetary Policy Committee of the bank also resisted late calls from some financial industry economists to reduce its historically low borrowing rate which is currently set at 0.5%.
The prospect of Thailand recording a second year of economic contraction had already become even more distinct on Tuesday after a warning from the Thai National Shippers’ Council that exporters have been hit hard by the Delta virus outbreak which emerged in mid-June and which is still rising throughout the kingdom.
Exporters are ‘stressed’ by the current situation causing them losses estimated to run into hundreds of billions of baht with customer’s orders not met
‘Although there are already orders, we can’t get them,’ declared the Chairman, Chaichan Chareonsuk, as he explained the frustration being felt by an estimated 1,500 factories who cannot meet orders placed by their customers. ‘Last month, exporters were concerned about Covid. But right now, they are stressed’.
Mr Chaichan gave an estimate of losses at this time ranging from somewhere between ฿200 billion and ฿300 billion but also appeared to indicate that the potential loss could be even more than this, up to ฿600 billion, based on orders that had been achieved this year and the momentum that had been developing within the country’s export sector in the first five months of 2021 when sales exceeded last year by 15.5%.
Thailand could lose $5 billion or ฿165 billion a month in lost export revenue if firms cannot meet demand
He said he anticipates that exports will currently run at $19 billion to $19.2 billion per month but that without the effects of the virus, which is hampering production in red and deep red zoned areas of the kingdom, the potential export figure could had been up to $23 billion per month representing a loss from July to the end of the year of $24 billion or over ฿790 billion.
The US dollar is currently valued at ฿33.02 which represents a decline of over 10% against the US currency since the last day of December 2020, and of course, is one of the reasons for thriving export orders which had been seen as the last hope for the Thai economy this year.
Business is out there but manufacturing industry is being crippled by the aggressive Delta virus
Due to the crippling effects of the virus situation which has required large employers in many instances, to install testing facilities for plants to keep them in production, the export industry leader has now suggested that Thailand’s exports for 2021 will only show a 7% gain from 2020 which, in itself, was a disappointing year.
He confirmed, however, that the demand for Thai manufactured goods and products was out there.
He identified the food, auto parts, textiles and electronics sectors as among the hardest impacted by the Delta virus wave.
Lockdown extended nearly nationwide and deepened in Bangkok as Delta wave still rises to record levels
The disturbing news from the country’s manufacturing and exports hub, centred in the central and eastern provinces near Bangkok, is coming while the government is extending lockdown measures with the wave of infection continuing to grow alarmingly.
Only Phuket, the holiday island sealed off from the rest of the kingdom, is not listed as a red zone of infection.
Economists speculate that the government’s coffers may be limited and it will need to borrow more
Many economists have expressed concern that the government may not be in a financial position to respond effectively as it did last year to the plight of workers and small business owners whose incomes have been eroded or, as in many instances, wiped out due to the current lockdown measures and a stalled economy.
In May, the Thai cabinet surprised many financial observers when it quickly passed a ฿500 billion loan facility which was later approved expeditiously by parliament in June.
On Tuesday, at Government House, spokesman Anucha Burapachaisri assured the public that the government had sufficient resources to manage the situation although he was not clear on whether it will have to breach the legal public debt limit set by law.
Press queries government loans and expenditure
The response from the press spokesman came after the media raised queries on expenditure under the ฿1 trillion fund, raised last year and the latest loan tranche.
The questions were linked to the prospect of an extended lockdown and the burden that may be placed on ministries to pay out financial supports to the population and businesses as the economic fallout and contagion from this latest range of lockdown measures, which have been extended again over the last week, make themselves known.
Former aide to the PM, Kobsak Pootrakool, calls for supports to firms suffering severe financial damage from the virus and lockdown measures
On Wednesday, Kobsak Pootrakool, formerly a minister at the Prime Minister’s Office and now a Senior Vice President with Bangkok Bank, called on the government to allow tax relief to firms following site closure orders and the need to vaccinate and test staff.
He estimated that a business with 1,000 employees will face a ฿2 million bill to vaccinate staff while the closure of sites and camps linked with business projects is estimated to be costing firms ฿5 million to ฿10 million per day.
Mr Kobsak said this extended into the wider domestic economy now also with retail and department stores severely impacted by this latest and escalating emergency.
Overnight extension of lockdown measures
This week, the government extended its lockdown measures in an overnight announcement carried on the Royal Gazette.
On Wednesday, the kingdom awoke to another record level of infection at 20,200 with 188 deaths.
Some observers now predict the peak level of infection from the current wave to hit over 40,000 per day while deaths will also rise in proportion as they lag behind infection figures.
Prospects of a breach of the State Fiscal and Financial Disciplines Act (2018) are growing to fund the government’s efforts to provide state assistance
With tax receipts already plummeting and with a legal borrowing limit imposed under the State Fiscal and Financial Disciplines Act 2018, the government has little room to manoeuvre as it approaches the end of its fiscal year at the end of September.
On Tuesday, the Thai cabinet moved to reduce expenses paid by parents on tuition fees while also agreeing to financial support for 90,000 workers in selected areas among a selection of qualifying industries who are employed under Section 33 of the Social Security Act of 1990.
Mr Anucha was noncommittal on the prospect of the government breaching the 2018 Act and the public debt spending limit.
Government officials have, for some weeks, been speculating that this is possible and indeed that there is legal leeway for the Finance Ministry to do so under present circumstances.
The press spokesman said that such an eventuality depended on how the situation may develop but that the government was presently mindful of the need for discipline and financial stability as a key priority.
Finance Ministry’s 1.3% GDP growth projection now appears to be an upside hope as things slide
The bad news, now coming from all quarters, means that the 1.3% GDP projection outlined only last week by the Ministry of Finance now looks like the upside to this equation.
The current emergency and lockdown measures have devastated confidence among the public and business sectors.
Index levels were already falling after May with signs of falling investment in the private sector which rose earlier in the year before diving as the third-wave hit the country in May followed by the Delta variant wave in mid-June.
The 1.3% projection from the Finance Ministry was based on a 16% growth in exports for 2021 which industry leaders now say will be only 7% with a projection for foreign tourist arrivals at 300,000.
Financial experts estimate that the loss in exports caused by the disruption to output alone could see anything from a 1.5% to 3% drop in GDP as exports including goods and services account for 59.77% of Thailand’s GDP.
Foreign tourism industry picture is sobering, a 99% wipeout is all but assured for international visitors
On the foreign tourist side, the news is also sobering.
The kingdom only saw 40,447 visitors in the first six months of 2021.
While the Phuket sandbox has shown moderate success, officials are now openly admitting that its prospects have been diminished significantly by the Delta virus wave sweeping the country and other complications.
It achieved 14,005 visitors for July but, this week, the Minister of Tourism and Sports, Phiphat Ratchakitprakarn, warned that August will not see more than 15,000 visitors.
Based on a potential for a pickup in numbers in the last quarter if the virus begins to recede, the figure of 300,000 as suggested by the Finance Ministry begins to look realistic.
This will be 0.75% or less than 1% of the outcome for 2019 or at least ฿2 trillion lost to Thailand and at least a further ฿500 billion in potential domestic tourism receipts.
Nosedive in domestic tourism also in 2021
In addition, domestic tourism has also tanked according to Yuthasak Supasorn the Governor of the Tourism Authority of Thailand (TAT).
He said that in the first five months of 2021, it was off by 54% even before the disaster of the Delta wave struck from mid-June.
He was also guarded about any recovery.