Thailand: Economy records sharpest contraction since 1998 in Q2
August 17, 2020
GDP declined at a more pronounced pace of 12.2% year-on-year in the second quarter, below the 2.0% contraction recorded in the first quarter. Q2's figure marked the worst reading since the Asian financial crisis in 1997–1998 as fallout from the Covid-19 pandemic pummeled household spending, fixed investment and exports. That said, the figure came in slightly above market expectations of a 13.0% contraction.
Household spending contracted 6.6% in Q2, marking the steepest decline since Q3 1998 (Q1: +2.7% yoy), due to disruptions from lockdown measures to contain the health crisis and a worsening labor market. Fixed investment contracted 8.0% in Q2, marking the worst result since Q1 2014 (Q1: -6.5% yoy), amid elevated uncertainty. In contrast, government spending bounced back after having been constrained by a delayed budget in the previous quarter, growing 1.4% in Q2 (Q1: -2.8% yoy).
On the external front, exports of goods and services nosedived 28.3% in Q2 (Q1: -7.3% yoy) as tourist arrivals evaporated due to border closures and external demand for goods plummeted. In addition, imports of goods and services tumbled 23.3% in Q2 (Q1: -3.1% yoy), reflecting the weak domestic economy.
On a seasonally-adjusted quarter-on-quarter basis, GDP declined 9.7% in Q2 from the previous period's 2.5% fall.
The grim GDP release confirms that Thailand’s economy fell deeper into recession in the second quarter. Commenting on their outlook ahead, Nomura analysts Charnon Boonnuch and Euben Paracuelles explain:
“We revise down our 2020 GDP growth forecast to -7.6% from -6.3%. […] The downward revision mainly reflects our more cautious view that there will be a limited recovery in tourist arrivals to still close to zero in H2, as the reopening of international borders will likely be sluggish amid the COVID-19 pandemic. Our forecast also takes into account rising political uncertainty due to the escalating street protests at a time of the deepening economic recession, which will likely weigh further on the pace of recovery in H2.“