Thailand runs the risk of fueling its unemployment rate and household debt for a decade with the imposition of measures similar to a closure to contain the deadliest Covid outbreak affecting the nation.
The Bangkok area, which accounts for about 50% of Thailand’s gross domestic product, will close shopping malls, spas, massages and beauty clinics for at least two weeks from Monday. A mandatory rule for working from home for most government employees, overnight curfews and limits on domestic travel is affected by retailers, airlines and restaurant operators, who already receive some sort of Covid restriction. for more than a year.
Thailand is tightening restrictions to curb the spread of the most contagious delta variant of Covid, which also fueled an increase in cases from Indonesia to Vietnam, and thwarted its plans to open borders. The latest measures could delay the recovery of the Thai economy from the worst fall in more than two decades and derail Prime Minister Prayuth Chan-Ocha’s goal of welcoming vaccinated tourists in mid-October.
“Economic success will be growing with each closure, even if the duration of the closure is the same,” said Maria Lapiz, CEO of Maybank Kim Eng Securities Thailand. “This is because many companies are already nearing the end of their bond after so many months of declining revenue and a stubbornly high cost of living.”
Lapiz sees Thai households being affected and business profits declining, while Radhika Rao, an economist at DBS Bank Ltd. in Singapore, he says “downside risks are rising” for the growth forecast of Southeast Asia’s second largest economy.
Here’s a look at the significance of the latest Covid restrictions on the Thai economy:
Even before the announcement of the latest measures, Thailand’s central bank saw “a significant downside risk” to its current economic growth forecast of 1.8% for this year, saying that a prolonged outbreak will reduce business liquidity and affect employment in the services sector. He expects the economy to return to pre-coveted levels only in early 2023 if herd immunity is delayed until the end of next year.
On Monday, the Bank of Thailand said it could cut its 2021 GDP forecast to take into account the worsening Covid outbreak and will closely monitor the situation to see if further policy measures are needed.
“While expectations were that this year would accommodate the economy due to the availability of vaccines, the economic impact is likely to increase until deployment reaches critical mass,” said Rao of DBS Bank. . “Expectations of recovery depend on public spending and exports, while weak consumption clouded private sector investment trends”
The unemployment rate is likely to rise by 1.96% at the end of the first quarter, the highest level since 2009, as more people are likely to lose their jobs with a prolonged outbreak and slow down businesses. The success of the city service industry may lead more people to agriculture, a trend that was observed during a national shutdown last year.
The Bank of Thailand last month predicted a “W” -shaped recovery in the labor market, slower than past rebounds due to what it calls deep scars in the fragile services industry.
The debt of Thai households, which rose to a 18.5-year high of 90.5% of GDP, may increase further given the loss of jobs and income due to hardening restrictions. This will severely affect consumer spending, a key driver of economic growth.
Thailand has distributed about 12 million doses of vaccines, enough to cover about 9% of its population, placing the country behind more than 120 other territories in inoculation rates. According to Kampon Adireksombat, deputy managing director of SCB’s chief securities officer, the government should increase vaccinations and consider spending most of a planned 500 billion baht loan plan “to ensure higher quality vaccines in instead of compensating the affected groups and stimulating the economy ”. Investment Office.
“If we close without increasing vaccines, new cases can fall temporarily before rising again,” Kampon said. “We will be in the ugly cycle of blockades and compensations. That will hurt the economic outlook next year. “
Investors have already borne the brunt of the worsening pandemic in Thailand, with the nation’s currency and stocks falling for four weeks in a row. While a strong dollar has contributed to the fall of the baht to a near 15-month low, equities have suffered foreign investors to extract $ 2.6 billion net so far this year.
Earnings from consumer goods companies, retailers, airlines, hotels and mall operators may be hurt by a weak economy and continued restrictions, while the US dollar may further influence the baht.
“Foreign investors are likely to avoid high-risk emerging markets, including Thailand,” said Kampon, of SCB. “The baht will remain weak and the central bank will only intervene to curb excessive movements. But it should be good for exports, which should support the economy.”