Thailand’s economic outlook for 2021 – Thailand business news
Thailand’s economy will grow next year after contracting nearly 10% this year. Next year, the Thai economy is expected to grow 3-4% from this year. It will be necessary to wait until the end of 2022 for the Thai economy to return to its pre-Covid level of 2019.
However, if there is another wave of Covid-19 in Thailand, or if effective vaccines are delayed, the recovery could be slower than expected.
The recovery is conditioned by a rebound in tourism and exports
If large-scale vaccination becomes available by June 2021, major advanced economies such as the US, EU, Japan and China, which will be the first to receive the vaccines, could start to recover in the future. second half of next year. This would then allow greater international tourism and exports to Thailand.
The government expects inbound tourism to be around 8 million by the second half of 2021, well below 40 million in 2019. The majority of tourists will come from China, while the rest will come from countries. without Covid. Foreign tourism revenue will only return to pre-Covid levels once the pandemic is over.
Thailand’s exports to its main markets – US, China, EU and Japan – will increase as these markets recover. Exports of goods are expected to decline 8% this year before increasing 4-5% next year.
Exports will not return to their pre-Covid level of 2019 until 2022
However, export earnings in baht terms will be lower than in 2019 as the baht will remain strong at around 30 baht to the US dollar.
With the slowdown in exports and tourism so far, the incomes of local businesses and their employees have declined. Small and medium-sized businesses have been particularly affected as they do not have sufficient liquidity to survive the economic downturn.
SMEs employ more than 90% of workers in the non-agricultural and non-public sectors, or 13 million of the Thai workforce. The working hours of the Thai workforce have so far this year decreased by almost 10% compared to last year. Working hours are expected to improve next year but will remain lower than in 2019.
Farm income has also been affected by the pandemic
The latest TDRI research shows that more than half of farm household income comes from non-farm activities such as their children’s remittances and their off-season work in construction, catering, craft activities, etc. pandemic.
The decline in working hours and income has also affected domestic purchasing power and household debt. In October, purchases of non-durable goods (drinks, food, tobacco, etc.) returned to their pre-Covid levels but no durable goods (cars, electrical appliances, clothing, etc.). Domestic tourism spending remains half that of October of last year. In contrast, household debt increased faster than it had. In the second quarter, household debt stood at 84% of GDP and is increasing; this will limit spending in the future, even when the pandemic is over.
The public sector remains the only key driver of the Thai economy
The government has ample resources to spend next year. Only 30% of the trillion baht loan this year has been disbursed. With next year’s budgets from central government, local government organizations and state-owned enterprises, public sector resources amount to more than four trillion baht (about 25 percent of GDP). Public spending and investment will have to accelerate next year to counter the negative effects of the pandemic on SMEs and workers.
Oil prices, inflation and interest rates will remain low. The price of oil is expected to climb to nearly US $ 50 (1,511 baht) per barrel next year, but remain well below the $ 65 per barrel price in 2019. With low oil prices and a slow recovery in oil prices. demand in the country, inflation will remain below 1% next year. Likewise, interest rates will be close to zero as global interest rates will remain close to zero until 2022.
The projections mentioned above carry downside risks. The main risks to the economic recovery include the effectiveness of vaccines and the potential additional waves of the pandemic in Thailand. The global business environment will be more unfavorable than during the pre-Covid period, as the trade and technology wars between the United States and China will continue, as many countries become more protective of their domestic businesses during this economic downturn. This will affect the recovery of Thai exports.
While most businesses have yet to regain their pre-Covid levels, some businesses have thrived during the pandemic. They include digital and related businesses such as e-commerce, delivery and packaging services, IT solutions, cybersecurity services, health and hygiene products, and insurance.
The relocation of production capacity from China to Asean, particularly to Vietnam and Thailand, continues as companies diversify their risks outside of China. The automotive and electronics industries, for example, are shifting production to markets outside of China to Thailand. Businesses related to public sector investments and activities will continue to grow over the next year as government spending increases.
Kirida Bhaopichitr, PhD, is Research Director for International Economics and Development Policy at the Development Research Institute of Thailand. TDRI’s policy analyzes are published in the Bangkok Post every other Wednesday.
The post-Thailand economic outlook for 2021 first appeared on TDRI: Thailand Development Research Institute.