Here‘s Why Thailand’s Dire Economic Outlook Is the Worst in Asia

Thailand has been cited as a success story in containing the coronavirus outbreak, having gone more than 40 days without any local transmission of Covid-19. Yet its economic outlook is the darkest in Asia.

Gross domestic product is forecast to contract 8.1% this year, according to the Bank of Thailand. That‘s worse than official forecasts for any of the main economies across Asia, and would be Thailand’s biggest GDP decline ever, surpassing even its plunge during the Asian financial crisis two decades ago.

“Thailand has large exposure as a tourism hub, close to 15% of GDP, and it also has large exposure of the export-oriented sector,” said Kiatipong Ariyapruchya, senior economist for Thailand at the World Bank. “Hence the large shock to GDP.”

Bangkok Crunch

Analysts see Thailand's 2020 economic outlook as worst in Southeast Asia

Source: Bloomberg surveys

Analysts surveyed by Bloomberg predict Thailands economy will contract more than others in Southeast Asia, at 6%, and with a weaker rebound in 2021 of 4%.

Here‘s what’s weighing down the Thai economy:

The state of emergency, nighttime curfew and business closings imposed across the country to fight the virus have crushed private consumption and investment, which were already on a modest downtrend last year. Purchases are expected to pick up as the lockdown restrictions are lifted and as government stimulus measures filter through to the economy, but investors could be slow to return given the gloomy prospects.

Tourism Nosedive

Covid sharply interrupts Thai visitor boom, with modest rebound likely

Source: Bank of Thailand

Note: 2020, 2021 are central bank forecasts

Thailand recorded no foreign tourist arrivals or receipts for a second straight month in May as the pandemic forced border closings. Annual tourist arrivals are forecast to drop to 8 million, just one-fifth of last years total.

Despite plans for travel bubbles with select countries, Thai authorities are proceeding to open the country slowly and carefully. Efforts to kindle domestic tourism won‘t offset the tremendous losses to this critical industry, which last year made up about one-fifth of Thailand’s economy.

Golden Distortion

Surges in gold shipments are exception to otherwise weak Thai exports

Source: Thai Customs Department

At first glance, Thai exports appear to have held up relatively well this year, contracting for only two of the first five months of 2020.

As it turns out, distortions in one commodity have helped cushion the overall blow. Rising gold prices during the outbreak have led local investors to sell gold, boosting total exports. Excluding gold, total shipments have been hit hard by weak global demand and supply-chain disruptions.

Baht Troubles

Sources: Bank of Thailand, Bank for International Settlements data compiled by Bloomberg Economics

The Thai baht has gained almost 6% against the U.S. dollar in the past three months, the second-best performer in Asia tracked by Bloomberg. Despite the Bank of Thailand‘s three interest-rate cuts this year, which have brought the benchmark rate to a record low of 0.5%, the country’s success in containing the pandemic has kept the currency strong.

READ: THAILAND INSIGHT: BOTs Focus on Baht May Reduce QE Odds

The central bank has showed concern about the baht‘s strength, which hampers exports and will complicate the economic recovery. Officials have warned they’re considering additional steps to tame the baht if needed.

All Kinds of Bad

Analysts forecast deep contractions for Thailand's economy this year

Sources: Banks, International Monetary Fund, Bloomberg Economics

— With assistance by Cynthia Li