Thailand: GDP declines at softer rate in the fourth quarter
February 15, 2021
GDP declined 4.2% year-on-year in the fourth quarter, coming in above the 6.4% contraction logged in the third quarter and thus continuing the recovery since Q2’s plunge—which had marked the worst reading since the Asian financial crisis in 1997–1998. Q4’s figure came in above market expectations and reflected the relatively well-contained state of the pandemic domestically during the period. On a seasonally-adjusted quarter-on-quarter basis, economic growth slowed to 1.3% in Q4 following Q3’s 6.2% rebound. For 2020 as a whole, GDP contracted 6.1%, markedly below last year’s 2.3% growth and the worst reading since 1998.
The improvement in Q4 in annual terms reflected a return to growth in private consumption: Household spending rose 0.9% year-on-year in Q4, contrasting the 0.6% decline in Q3 and spearheaded by a pickup in expenditure on durable goods. Meanwhile, fixed investment declined at a milder rate of 2.5% in Q3 from the 2.6% drop logged in the previous quarter. However, government spending growth fell to 1.9% from 2.5% in the previous quarter, capping the improvement in domestic demand somewhat.
In the external sphere, exports of goods and services fell 21.4% on an annual basis in the fourth quarter, which was above the third quarter's 23.3% contraction, with the improvement driven by healthier goods exports, although service exports remained severely suppressed. In addition, imports of goods and services declined at a softer rate of 7.0% in Q4 (Q3: -19.3% yoy).
In its release, the Office of National Economic and Social Development Board updated its outlook for 2021, projecting the economy to expand between 2.5% and 3.5%—relatively conservative compared with the majority of our panelists’ projections and down 1.0 percentage point from its November projections—as improving domestic demand and a recovering external environment bolster activity. However, the spike in cases both domestically and abroad, along with ongoing travel restrictions that affect the all-important tourism industry, are significant headwinds to the recovery in 2021.
Regarding the outlook, Barnabas Gan, economist at United Overseas Bank, commented:
“[The] growth outlook for Thailand in 2021 will depend on three key factors: (1) Covid-19 environment, (2) domestic political situation and (3) global trade backdrop. The recent spike in Covid-19 infections in Thailand since December 2020 will likely negatively impact consumer confidence. Political noise surrounding protests calling for royal reforms may also inject growth headwinds should it escalate further. Lastly, the expected recovery in Thailand’s external environment, led by the uptick in economic momentum in both developed and developing economies to-date, may support growth in 2021.”
Charnon Boonnuch and Euben Paracuelles, analysts at Nomura, share similar concerns for the near term, stating :
“We reiterate our forecast for only a modest pickup in 2021 GDP growth to 2.8% in 2021. […] This implies economic output does not return to pre-Covid levels this year but only in Q1 2022, lagging [behind] other ASEAN countries such as Singapore and Malaysia.”
Author: Stephen Vogado, Economist