Thailand: GDP declines at milder rate in the third quarter
November 16, 2020
GDP dropped at a slower rate of 6.4% year-on-year in the third quarter, above the 12.1% contraction logged in the second quarter, which had marked the worst reading since the Asian financial crisis in 1997–1998. Q3’s figure came in above market expectations and reflected the easing of pandemic-induced restrictions during the period. On a seasonally-adjusted quarter-on-quarter basis, economic growth bounced back with GDP growing 6.8% in Q3, contrasting the previous quarter's 10.3% contraction and marking the strongest increase since Q1 2012.
The upturn in annual terms reflected a broad-based improvement in private consumption, public spending, fixed investment and exports. Private consumption slid at a softer pace of 0.6% year-on-year in Q3 from a 6.8% contraction in Q2, aided by a reduction in lockdown measures and domestic travel restrictions throughout the third quarter. Meanwhile, public spending sped up to a 3.4% expansion in Q3 (Q2: +1.3% yoy) on increased social transfers and an improving budget disbursement rate. Moreover, fixed investment declined at a milder rate of 2.4% in Q3 from the 8.0% plunge logged in the previous quarter.
In the external sphere, exports of goods and services dived 23.5% on an annual basis in the third quarter, which, while above the second quarter's 27.8% contraction, likely reflected the perilous state of the tourism industry amid vastly reduced visitor arrivals. In addition, imports of goods and services declined at a softer rate of 20.3% in Q3 (Q2: -23.2% yoy).
In its release, the Office of National Economic and Social Development Board produced its outlook for 2021, projecting the economy to expand between 3.5% and 4.5%—relatively conservative compared with the majority of our panelists’ projections—as improving domestic demand and a recovering external environment bolster activity. However, the vicissitudes of the pandemic continue to cloud the outlook, despite recent positive news regarding vaccine developments.
Commenting on Q3’s results, Krystal Tan and Sanjay Mathur, economists at ANZ Research, noted with caution:
“While Thailand’s economy is on the mend, a full-bodied recovery will have to wait until the global pandemic is under control and tourism inflows resume on a meaningful scale. Speedier-than-expected vaccine developments would brighten the outlook, but these could be countered by political instability.“
Regarding the outlook, Barnabas Gan, economist at the United Overseas Bank, commented:
“Should the recovery continue to materialise, we pencil GDP to contract by a lesser margin of 5.6% y/y (+0.9% q/q sa) in 4Q20, and a robust +6.0% growth in 2021. Notwithstanding the uptick, Thailand still remains one of the Asian economies that is very dependent on trade and tourism, and further downside risks to growth are present should circumstances worsen further in 4Q20.”
Author: Stephen Vogado, Economist