This is not really a good time for economists and/or economic research institutions to make GDP growth projections for Thailand as the Covid-19 pandemic is far from settling down. Unstable economic conditions have caused a well-known research institute to revise its 2021 growth projections five times already.
Their researchers started with projected growth of 2.2%, but better than expected export figures prompted them to revise the growth number upward to 2.6% in March. In May, the number was slashed to 2% owing to the possibility of a third wave outbreak. Dimmer prospects of foreign tourists caused a fourth revision of GDP growth to 1.9% a month later. Just last week, the GDP growth number was further cut to 0.9%.
No need to guess the cause; it is the severity of the 3rd Covid outbreak. I have a feeling that the 6th revision is coming soon after the government decided to impose another two months of lockdown. All growth projections, whether coming from the Ministry of Finance, National Economic and Social Development Board (NESDB), or Bank of Thailand, are as good as their assumptions on Covid-19 effects, which are obviously not very good.
Have they factored in the effects of curfews on employment and income? The effects could be substantial as factories have to close before 8pm at the latest which means no night shifts and limited overtime. A study by the International Labor Organisation (ILO) found that Covid-related restrictions reduced working hours by 18.2% in the second quarter of 2020. Such income loss would certainly reduce consumption. Therefore, projections made before curfew orders must be revised downward.
It is clear that projecting the economic outlook cannot be performed without making "reasonable" assumptions on Covid-19 outbreaks and other factors like government control measures and economic stimulus policies. Here are my "reasonable" assumptions for the latter half of 2021.
Assumption one. The Covid-19 outbreak is far from reaching its peak and it will last until the end of the year at least.
The reason is global infection statistics. Thailand's infection rate is only 0.9% -- out of 100 people, less than one person is infected -- compared to the global average of 2.6% which means that there is a high probability that infections might continue at a fast pace in this country.
On the high side, UK and Chile have infection rates of 8.25% and 8.29% respectively. These are not good examples to follow. Closer to home, infection rates were 1.25% in Indonesia and 3.5% in Malaysia, and transmissions there keep rising.
Assumption two. Outbreak control measures are a miss more than a hit. The government ineffectively aims to control mobility through consumption by closing shopping malls and prohibiting in-restaurant dining.
The results? Instead of a decline in daily infection cases, daily infections now exceed the 20,000 level. It might be time to accept the fact that the real drive for mobility is not going to shop and eat, but going to work to earn a living.
Out of a population of 70 million, there are 38.8 million Thai workers who must commute to work (and inevitably bring the virus home). Only a lucky few can manage to work from home. How could 5.4 million factory workers bring their production lines home? More importantly, their working conditions are conducive to Covid-19 infection like crowded working spaces, sharing rides to and from the factory, and using the same toilet facilities.
If the government wants to stop infections related to work mobility, it has to pay workers to stay at home. The price tag is 300 billion baht per month. I am no fortune teller nor an epidemiologist. But I am sure that the next cluster, if it hasn't already taken root, is the factory cluster where at least a million workers will test positive for Covid-19.
Assumption three. Export growth is not the hero we are led to believe. It is true that exports of goods rose 36.2% in the second quarter of this year. But no one tells you that imports of goods rose even faster at 41.8% in the quarter which cancelled out the positive effects of high export growth. This is because of the low level of international trade in 2020 due to the global shutdown of economies.
But what really bothers me is the unusual service account deficit of $14.9 billion in the second quarter which is $4 billion higher than the first quarter and $10 billion higher than the same quarter last year. This is bad for GDP as what enters into a GDP valuation is "Net Exports of Goods and Services", not just net exports of goods. What is going on with Thailand's external sector?
Assumption four. The government is broke. An emergency decree authorising the government to borrow an additional 500 billion baht was issued on May 20, 2021 or more than two months ago. Has anybody seen any spending from that "emergency" decree?
Why the hold-up -- is the situation now not critical enough? Furthermore, most of the worker's compensation money for (temporary) business closures is from the Social Security Fund, not the government's own coffers.
In fact, the Social Security Fund started playing its part yesterday, but we have yet to see the government co-contribution as promised. This clearly indicates what kind of fiscal position this government is in. Any rumours about additional stimulus packages will remain just that: rumours.
Assumption five. The country's liquidity position is reaching a crisis level. In April 2020, there was 808 billion baht of excess liquidity for the government to borrow when needed.
In January 2021 (second round of the outbreak), the country's excess liquidity dropped to 624 billion baht, but that was still more than adequate to satisfy government borrowing. In June 2021 (third round), with a huge outflow of capital, excess liquidity was at a dangerously low level of 73 billion baht. Therefore, there are no big relief packages in this round.
With these five assumptions, I am afraid that we might not see positive economic growth this year. But GDP growth is not something I am worrying about. The cruel fact is that 87% of Thais have an average of just 4,622 baht in their bank accounts. How can they survive harsh economic conditions without government support? In my view, at least 2 trillion in economic support packages must be provided if one wants to save Thailand. How can we pull this off? Come back next time for more.