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Domestic factors including politics weighing on Thai economic recovery: StanChart
EconOct 15. 2020Standard Chartered Bank (Thai) economist Tim Leelahaphan
By The Nation
But bank eyes potential upside in 2021 and says focus must be placed on attracting increased foreign investment.
Domestic factors have weighed on Thailand’s slow economic recovery and an urgent boost is needed to restore local confidence, Standard Chartered Bank said on Thursday, warning it will take 3-5 years for the country’s key economic driver – tourism – to return to pre-Covid levels and adding that attracting increased foreign investment must be the focus for 2021.
“The economy has bottomed out from the peak of the Covid-19 impact at the beginning of the year,” said Standard Chartered Bank (Thai) economist Tim Leelahaphan. “However, the pace of recovery has been slow. Although exports have seen an uptick, the local political situation needs to be closely monitored. And while the Covid situation in Asia has improved, the situation in Europe and the United States remains a significant concern.”
Thailand is also adjusting to the government’s new economic team, Tim said, while the disbursement of funds from the government’s and the Bank of Thailand’s stimulus measures is far from fully utilised.
“Financial markets are in a wait-and-see mode as there are so many issues which could impact the extent of the recovery: they want to see a clearer direction from the Finance Ministry, details surrounding budget disbursement and new government investment, which can spur fresh private investment, the developing political situation, border reopening and the development of a Covid-19 vaccine,” Tim said.
Standard Chartered Bank has “10 observations” for Thailand’s 2020 economy and the potential upside to boost the country in 2021:
1. The economy has bottomed out. Standard Chartered Bank expects Thai GDP to contract 8 per cent in 2020 before rebounding to grow 2 per cent in 2021. The country is paving the way for a recovery, but the pace has been dragged by domestic factors and lingering uncertainties in external markets.
2. Exports from emerging markets and Asia, including Thailand, have shown signs of recovery. However, Thailand’s key economic driver – tourism – remains in the doldrums. While there has been an uptick in exports, overall economic growth cannot be sustained unless the tourism sector recovers.
3. Eyes are now on how the newly appointed finance minister will restore confidence to financial markets.
4. Regarding political developments, prospects of a resolution remain unclear. With the Thai economy expected to contract significantly this year, this may impact the pace of recovery.
5. As the market awaits a fresh stimulus policy from the new economic team while taking a wait-and-see approach on domestic politics, there will be limited impact on the dollar and baht. The bank expects the baht-dollar exchange rate to be 31 at the end of 2020.
6. Foreign investors not only consider short-term factors but also assess Thailand with a longer-term view. The crucial question they ask is when can the Thai economy make a significant recovery and when will the number of international visitors return to pre-Covid levels of 40 million annually.
7. We believe that Covid-19 has disrupted the country’s tourism strategy. Thailand is shifting its focus from the volume of tourists to value, while decreasing its dependency on a single market.
8. Overall, the market is watching Thailand’s fiscal front, budget disbursement, the political situation, the reopening to international visitors, and the development of a Covid-19 vaccine. Currently, there is nothing that can significantly restore confidence. Financial markets may regain more confidence if they detect positive signs of government budget disbursements. Government investment could also trigger new private investment to help recovery.
9. We believe the Bank of Thailand is also taking a wait-and-see approach. If the situation remains unchanged but there are some positive signs detected, the central bank is expected to keep its policy rate unchanged at 0.5 per cent. However, if there is no economic uptick or the situation is dampened this quarter, BoT may cut its policy rate to 0.25 per cent.
10. We believe financial markets are keen to know if the central bank will offer additional stimulus tools in 2021. Will QE [quantitative easing] or yield-curve control or measures targeting SMEs be on the table? How effective would those tools be and how would they fit into Thailand’s economic environment? What is the expected result and anticipation? This should be the factor that financial markets and investors focus on in 2021.