Thailand: GDP shrinks slightly in Q3
November 15, 2021
The economy fell back into contraction in the third quarter, with GDP dropping 0.3% year-on-year and contrasting the 7.6% expansion recorded in the second quarter. However, market analysts had expected a sharper decline. On a seasonally-adjusted quarter-on-quarter basis, GDP contracted 1.1% in Q3, contrasting the previous period's 0.1% expansion.
The downturn was driven by weakening private consumption and fixed investment. Household spending contracted 3.2% in Q3, marking the steepest decline since Q2 2020 (Q2: +4.8% yoy), likely as a result of surging daily Covid-19 cases during the summer. Similarly, fixed investment swung to contraction, falling 0.4% in Q3 and contrasting the 7.6% increase recorded in the previous quarter. In contrast, public spending rose 2.5% in Q3 (Q2: +1.0% yoy), tempering the overall decline somewhat.
On the external front, exports of goods and services increased 12.3% on an annual basis in the third quarter, which was well below the second quarter's 27.7% expansion. In addition, growth in imports of goods and services waned to 27.8% in Q3 (Q2: +30.3% yoy). As such, the external sector deducted 8.5 percentage points from overall growth in Q3, deteriorating markedly from the 1.4 percentage-point subtraction in Q2.
In its release, the Office of National Economic and Social Development Board solidified its outlook for 2021, projecting the economy to expand 1.2%, having predicted between 0.7% and 1.2% growth in its August forecasts. Moreover, it provided a growth estimate of between 3.5% and 4.5% for 2022, predicting a recovery in domestic demand as the pandemic situation improves and vaccination advances. Moreover, the recent easing of entry restrictions for vaccinated travelers should boost tourism figures in the new year, helping to bolster exports in 2022.
Regarding the outlook, Krystal Tan, economist at ANZ, is optimistic, commenting:
“Overall, Thailand’s economic outlook is improving, though the upside of the rebound will be capped by the pace of recovery in international travel flows and the prolonged strain on household finances. We are keeping our 2022 growth forecast of 4.5%, which is the top end of the NESDC’s projection. With output unlikely to return to its pre-pandemic size until H2 2022, the Bank of Thailand is likely to be among the region’s last to withdraw policy accommodation.”
Chua Han Teng, economist at DBS Bank, is more cautious, stating:
“Thailand faces considerable scarring risks, and the fragile recovery is also fraught by external uncertainties including China’s slowdown and rising global energy prices. We thus maintain our 2022 real GDP growth forecast of 3.5%, from an upwardly revised rate of 1.2% in 2021 (from 0.6%). Thailand remains a regional laggard, with a return of real GDP levels to pre-pandemic levels only towards end-2022/early-2023. Given the still delicate economic recuperation and considerable scarring risks, we therefore expect economic policies (monetary and fiscal) to remain synchronous and accommodative over the coming quarters, as policymakers aim to provide continued support to the nascent recovery.”
Author: Stephen Vogado, Economist