The Bank of Thailand (BoT) has revealed that Thailand’s economy faces significant downside risks, because a prolonged COVID-19 outbreak could cause the economy to underperform the baseline projection, squeezing business liquidity and slowing employment.
Minutes from the BoT’s meeting on Wednesday say the recurring outbreaks have increased labor market fragility and recovery will be W-shaped and slower than in the past. The BoT’s Monetary Policy Committee stands ready to use the limited policy space at the most effective time.
At the meeting, the central bank cut its 2021 economic growth forecast to 1.8%, from 3.0%, and its 2022 outlook to 3.9%, from 4.7%.
The minutes also said the committee will ensure that exchange rate movements will not hinder economic recovery.
The impact of the US monetary policy outlook, on domestic long-term government bond and equity prices, will be limited due to low foreign participation in the long-term Thai government bond market and continued underweighting of Thai stocks in recent periods.
Significant downside risks for Thai economy
Looking ahead, the Thai economy faced significant downside risks and uncertainties from
various factors that needed to be closely monitored.
Prolonged outbreak and virus mutations
First, prolonged outbreak and virus mutations from existing and new variants would reduce vaccine efficacy. This could lead to a public health crisis, affect domestic spending, and delay the reopening plan to admit foreign tourists.
Government spending on economic relief and restoration lower than expected
Second, government spending on economic relief and restoration could be lower than expected if projects under the Emergency Decree faced approval delays or low disbursement rates.
New outbreak could exacerbate financial positions of businesses
Third, the new outbreak could exacerbate financial positions of businesses, especially the services sector, leading to widespread business closures and layoffs. Dismissed workers could be unemployed for extended periods and eventually give up finding jobs.
Further deterioration in business and household balance sheets would thus impinge on economic activities and cause a rise in debt defaults. Fourth, the supply disruption and increase in shipping costs would have greater impacts on Thailand’s manufacturing and export sectors than expected.
Source link : Downside risks loom for Thai economy due to Prolonged COVID-19 Outbreak by Boris Sullivan