Thailand Economic Focus: Thailand plunges into recession as COVID-19 hits tourism and its related industries

Thailand’ GDP contracted 1.8% y/y in the first quarter of 2020 amid COVID-19 and trade slowdown. This marks the first decline since the first quarter of 2014 and the deepest plunge since the final quarter of 2011. The Thai economy had already been under strain from the US - China trade tensions, budget delays, drought and an uncomfortably strong Thai Baht for the bulk of 2019. Amid the pandemic in the early part of 2020, tourism and trade engines hit the brakes.

• Tourist arrivals and receipts fell to levels not seen during the Global Financial Crisis in 2008/9 and SARS outbreak in 2013. Official data indicated that tourist arrivals and receipts in March plunged 76.4% y/y and 77.6% y/y, respectively. With inbound passenger flights banned until 30 June 2020, the government is now forecasting tourist arrivals to clock only 12.7 million persons, a decline of 68.1% from 39.8 million in 2019.
• Thailand’s trade engine may also continue to sputter into the rest of this year, as the global economy contends with the supply chain disruptions and the negative demand shocks as COVID-19 wears on. In addition, renewed risks over US-China trade tensions may magnify into the year ahead, which could portend further downside risks to trade prospects for Asia, including Thailand.

Growth drags from the virus pandemic and trade headwinds are also evident in the production approach. All three key sectors declined in the first quarter, which includes agriculture (-5.7% y/y), industrial (-1.9% y/y), and services (-1.1% y/y). Manufacturing momentum especially contracted for three straight quarters and saw the deepest contraction since the first quarter of 2012. Construction activities were hindered with a fall of 9.9% y/y in the first quarter, while the reduced tourist arrivals negatively impacted the accommodation and food service activities (-24.1% y/y).

Accordingly, Thailand’s economy is forecast to be in a recession in 2020. The state planning agency (NESDC) is now forecasting growth to contract between 5.0% and 6.0%, while the Bank of Thailand projects a decline of 5.3% y/y. With the lockdown in place since

26 March 2020, Thailand’s GDP may contract further by 9.0% y/y in the second quarter.

However, fiscal and monetary policy measures are being undertaken to cushion the economic impact of the COVID-19 pandemic. The central bank has cut its policy rate to a new historical low of 0.50%. The rate cut will add to further economic stimulus that has already been in place. The government has already introduced a generous three-part stimulus package estimated at around 15% of GDP. The accommodative monetary policy and generous fiscal measures are expected to further alleviate the liquidity problems of households and businesses as well as support economic recovery.

The views expressed within this publication are solely those of the author and do not necessarily carry the endorsement of the United Nations. Views expressed reflect the author’s judgment as at the date of this publication and are subject to change.