The economic impact of COVID-19 has been severe, particularly due to Thailand’s openness to trade and as a tourism hub.
- The Thai economy is projected to contract by 5% in 2020, which is among the sharpest projected declines in the East Asia and Pacific Region.
- Weaker global demand has led to a contraction in global trade, which, in turn, has hit Thailand’s exports and disrupted global value chains, such as automobiles, in which Thailand is an active participant.
- The tourism sector, which accounts close to 15% of GDP, has been severely impacted with a near cessation of international tourist arrivals since March 2020.
- Mobility restrictions imposed in response to the outbreak, while critical to flattening the infection curve, have severely dented private consumption, particularly for retail and recreational services. This is reflected in the sales of durables, which have seen a sharp decline of nearly 12% in the first quarter of 2020.
- Weakening demand and falling energy prices have also led to a sharp fall in inflation.
- The outbreak will likely lead to severe job losses, particularly in tourism, due to transmission control and social distancing measures.
- The impact on household welfare is also likely to be severe. The number of economically insecure, i.e., those living below $5.5 per day, is projected to double from 4.7 million in Q1 2020 to an estimated 9.7 million in Q2 2020, before recovering slightly to 7.8 million in Q3 2020.
- The shape of the economic recovery will be drawn-out and uncertain. Domestic demand drivers such as consumption may pick up as Thailand starts to ease mobility restrictions, but remaining international travel restrictions, trade and supply chain disruptions, will continue to impact the economy, particularly through reduced tourism.
- Economic growth is projected to pick up in 2021 (4.1%) and 2022 (3.6%), with a projected recovery to pre-COVID output levels in around two years. The strength of the economic recovery will also depend on an effective economic response to support vulnerable households and firms.
Supporting Vulnerable Households and Firms
- Thailand’s combined COVID-19 response packages amount to 12.9% of GDP, focused on providing relief to vulnerable households and affected firms.
- The programs are unprecedented for Thailand in terms of size, coverage and variety of instruments.
- A major component includes cash transfers to households and infrastructure projects in the local economy (5.9% of GDP) which will be partially funded through borrowing. In addition, the Bank of Thailand has set up a corporate bond market stabilization fund to help firms rollover maturing bonds (2.4% of GDP) and fund soft loans to SMEs (2.9% of GDP). Tax relief and debt restructuring for firms and households are also included.
- While Thailand has announced sizeable response packages, challenges include connectivity to register for beneficiaries and building an integrated social registry that can provide timely information to target vulnerable groups and provide information to policymakers on program design and gaps.
- Firm interventions could, going forward, be better tailored to sectors that have been especially hard hit by COVID-19 while maintaining coverage of vulnerable firms.
- Thailand will also need to invest in labor market policies and programs that can meet the changing needs of the economy. Training and employment services programs need to be reformed to reflect shifting demand in the labor market, toward more socioemotional skills as well as higher-order cognitive and technical skills.
- In the longer term, policies to support resiliency will be critical. As fiscal space decreases, the rebuilding of fiscal buffers, particularly through enhanced revenue mobilization, will be critical to allow Thailand to respond to future shocks as well as implement planned public infrastructure investments.