EIC evaluates that the Thai economy has already entered a recession with the deepest contraction in Q2/20, before gradually improving.

Author: Kampon Adireksombat, Ph.D. , Panundorn Aruneeniramarn and Phimchanok Hou

Thailand’s first-quarter data showed a -1.8%YOY economic contraction (marking the first decline since Q1/2014 and the highest decline since Q4/2011). Such growth pushed the Thai economy into a technical recession in Q1/2020 as the GDP growth (%QOQ sa) pointed to a two consecutive quarters decline.

In a nutshell, the Thai economy in Q1/2020 contracted following the direct hit of the COVID-19 pandemic, which severely weakened the tourism and export sectors. The economy was further hampered by delayed government disbursements that stalled government consumption expenditure and investment, as well as the harsh drought that dwarfed the supply of various key agricultural products.

EIC views that the economy will be hit the hardest in the second quarter from the impact of lockdown measures imposed in various countries, worldwide. Then, the economy should gradually improve during the second half with partial support from government stimulus and post lockdown measures. However, the major risk is that if there is a second wave of COVID-19 pandemic, it may cause the Thai economy to contract further.

EIC maintains the view that the policy interest rate will be lowered by 25 bps in Q2/2020 due to troubling economic conditions including the current recession with deeper contractions expected in Q2/2020 and the slow recovery with high lingering down-side risks. The MPC could most likely cut the policy rate by 25 bps during the Monetary Policy Committee Meeting on May 20, 2020.
 
For EIC’s in-depth economic forecasts and analyses, please stay tuned for the published report in early June 2020.