Thailand: Recession calls for more rate cuts

Thailand’s GDP fell by 1.8% in 1Q20 from a year ago and by 2.2% from the previous quarter (seasonally adjusted). The result is less negative than the consensus of -3.9% YoY and -4.2% QoQ and follows +1.5% and a -0.2% growth in 4Q19.

This is the first negative GDP growth (year-on-year basis) in six years, since 1Q14. Two consecutive quarters of negative quarterly growth confirms that the economy is already in recession.

Government consumption, fixed capital formation and net trade were the spending-side drags, shaving off 0.4 percentage point, 1.5ppt and 3.1ppt, respectively, from the headline GDP growth rate. The contribution of private consumption stayed positive but narrowed to 1.4ppt from 2ppt in 4Q19, and that of inventories swung to +1.7ppt from -2.8%.

On the supply side, agriculture, manufacturing construction and services – all with negative growth led the headline GDP lower. A 24% plunge in accommodation and a 6% fall in transport reflects the hit from weak tourism.

There will be an even bigger drop in GDP growth in the current quarter resulting from an extended state of emergency, initially imposed for a month starting 26 March and now lasting through the end of May. The impact stands to be compounded by similar restrictions pretty much everywhere in the world, depressing external demand for Thai goods as well as tourism.

Look no further than the confidence indicators for the depth of GDP decline this quarter. The Bank of Thailand’s Business Sentiment Index is a good guide (see figure). A record low BSI of 32.6 in April is consistent with our forecast of over 8% GDP fall in 2Q.

We maintain our full-year 2020 growth forecast of -5.4%. This is consistent with the government's forecast of a 5-6% GDP fall this year, which has just been revised today from an earlier view of 1.5-2.5% growth.