Thailand: Fragility warrants supportive policies

Thailand’s recovery while clouded by Omicron is likely to be delayed but not derailed. BOT to stay on hold in 2022, lagging the Fed, amid uneven recovery.
Chua Han Teng24 Jan 2022
  • Thailand’s nascent growth recovery is likely to be delayed but not derailed by the Omicron wave
  • Tourism to recover partially: resumption of quarantine-free travel scheme, but with higher costs
  • Policymakers place greater priority on growth over other goals; BOT to lag Fed
  • Potential capital flow volatility buffered by healthy reserve adequacy metrics
  • Implication for our forecasts: Maintain 3.5% real GDP growth forecast in 2022 for now; BOT on hold
Photo credit: AFP Photo

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Thailand, like the rest of the world, has again been struck by an emergence of a new variant of concern – Omicron, as the COVID-19 pandemic stretches into its third year. The global Omicron outbreak underscores the uncertain pandemic path and remains a key downside risk. Under our current baseline view, we think that Omicron is likely to delay but not derail Thailand’s economic recovery.

The Omicron wave and containment measures will dampen Thailand’s foreign tourist arrivals and domestic private consumption in the near-term. Economic activity should however catch up once the virus is under control, assuming by early-2022. We assume that as long as the virus outbreak is not escalating and prolonged, containment measures can be loosened and maintained, despite Omicron’s high transmission. Cases would also not be severe to the extent of straining the healthcare system, due to the efficacy of existing vaccines and inoculation rates that have reached critical mass, and supported by booster rollout. A manageable situation would allow for the ‘living with endemic COVID’ strategy to play out.

We believe that policymakers will continue to place greater priority towards supporting the economic recovery, which remains highly uncertain, fragile, and uneven. We expect fiscal and monetary policies to be kept rather easy. The fiscal deficit would remain wider than pre-pandemic levels, even though support would consolidate from the ultra-loose levels offered over the past two years. With respect to monetary policy, the Bank of Thailand (BOT) will not only lag the region, but also the US Federal Reserve in normalising policy rates. This would bring about heightened capital flow volatility and baht weakness, but the authorities are well placed to deal with it amid healthy reserve adequacy metrics.

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Chua Han Teng, CFA


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