Thai economy on a downward path

Growth in Thailand slumped to a five-year low in the fourth quarter of 2019. This was weaker than the consensus median estimate of 1.9% (we were a bit more bearish at 1.8%) and also down sharply from 2.6% growth in 3Q19.

Across-the-board weakness in spending, both domestic, as well as exports, caused the slowdown. The contributions of all main domestic demand components – private consumption, government consumption, and gross fixed capital formation shrank, while de-stocking remained a key drag on headline growth. The export decline accelerated but imports declined more than exports, leaving net trade in the driving seat of GDP growth, albeit with a smaller contribution to GDP growth. Agriculture and manufacturing were the industry-side drags on GDP.

This brings full-year growth down to 2.4%, almost half of what it was in 2018. This makes 2019 growth numbers the lowest since the 1% growth seen in 2014.

With perennial weak domestic spending and heavy dependence on tourism, we believe the economy is heading for a prolonged slump this year as coronavirus keeps tourist at bay. Or, probably even a recession as quarter-on-quarter (seasonally adjusted) GDP, which barely grew in the last few quarters, could well move into contraction territory over the next couple of quarters.

The last time the economy plunged into recession was during the military coup in 2014 when annual growth dipped to 1%. We could see something similar this year, or even worse if the virus continues to spread rapidly. But that's not our baseline scenario for now.

The National Economic and Social Development Council now sees GDP growth in 2020 in the 1.5% to 2.5% range, slower than its earlier forecast of 2.7% to 3.7%. We think growth at the low-end of the NESDC’s revised range appears to be a more probable view for the year. We are cutting our forecast to 1.5% from 2.3%.