BOT Sees “Underperform” Economy as Covid-19 Resurgence Turns Out to be More Severe

The December 2020 Monetary Policy Report released the economic projection approved by the Monetary Policy Committee at the meeting on December 23, 2020. The baseline economic projection was based on assumptions as follows.

1) Infections would occur only in limited areas, i.e., within Samut Sakhon and the nearby provinces.

2) No stringent and extensive containment measures would be implemented. Restrictions on certain economic activities in some areas could contain the new wave of infections within one to two months.

3) The economy would be affected through different channels. For example, some activities in the services sector would be affected. Tourism would be severely affected only in high-risk areas. Meanwhile, the manufacturing sector would not be significantly affected and private consumption would be somewhat affected. Nevertheless, the acceleration of government spending on public health could partly alleviate some adverse economic impacts.

 

At the start of January 2021, the spread of COVID-19 turned out more severe than previously assessed. This increased the possibility that the economy would underperform the baseline projection for 2021 and 2022.

The impact on the economy would increase through different channels. For example, the extent to which private consumption would be affected would depend on the severity of the containment measures being implemented. The services sector and tourism would be affected by low consumer confidence countrywide. Meanwhile, the impact on the manufacturing sector would be limited, but there could be some difficulties with logistics.

Nonetheless, Thailand made better progress with regard to the purchase of vaccines than previously assessed. The government had recently secured a certain supply of vaccines, which would allow widespread vaccination coverage to occur earlier than expected. In addition, the government also planned to purchase additional vaccines to cover at least 50 percent of the total population by 2021.

As the new waves of COVID-19 in Thailand would be highly volatile and uncertain, the Committee state that it would closely monitor developments of the situation and assess the economic outlook through public health information together with monthly, weekly, and daily economic indicators as well as information from the Business Liaison Program (BLP) survey in order to inform appropriate monetary policy decisions in the period ahead.

In December, the Committee expectedThai economy to contract 6.6%, which is better than expected due to the faster-than-expected recovery in nearly all economic growth components in the third quarter. Thai GDP is expected to recover to 3.2% and 4.8% in 2021 and 2022, respectively.