● Thailand’s GDP plunged in 2Q20, registering its deepest contraction since the Asian Financial Crisis in 1998 (-12.2% YoY; 1Q20: -2.0%), but outperforming consensus estimate of - 13.0% and chartingthe second-leastcontractionin the ASEAN5 region

− Primarily reflecting the adverse impact from the COVID-19 pandemic and its ensuing containment measures. − Seasonally adjusted QoQ: declined for the third straight quarter (-9.7%; 1Q20: -2.5%), suggesting a deepened recession.

- Seasonally adjusted QoQ: declined for the third straight quarter (-9.7%; 1Q20: -2.5%), suggesting a deepened recession.
 

● Growth deterioration was evident across domestic and external fronts, with the former led by the private sector activities

− Domestic demand (-5.7%; 1Q20: -0.7%): weakest since 1Q99

▪ Private spending: largely attributable to a weaker private consumption (-6.6%; 1Q20: 2.7%),as purchasing activities were hindered by the stringent movement restriction under the implementation of the emergency decree starting on 26th March. Households also reigned in purchases of discretionary items such as clothing & footwear(-21.4%; 1Q20: -7.1%) amid decline in income and a loose labour market condition (unemployment rate: 2.0%; 1Q20: 1.0%). Similarly, private investment withered at the fastest pace since the Global Financial Crisis (-15.0%; 1Q20: -5.4%), on closure of businesses under the lockdown period and hampered demand condition, weighing on business sentiment(35.2 points; 1Q20: 45.1 points) and resulting in a delayed investment plans.

▪ Public spending: bucking the trend, public investment grew at the fastest pace in four years (12.5%; 1Q20: -9.3%) driven by a surge in government construction (15.6%; -13.4%) under the development plan of transport & logistics and water resource management. The surge was also due to a pentup demand following a five-month delay in the passing of the budget bill. Public consumption also expanded by 1.4% (1Q20: -2.8%) buoyed by massive stimulus injections worth 14.5% of GDP, partly disbursed via purchases of goods & services and compensation of employees.

− Net exports (-105.4%; 1Q20: -41.1%): sharpest drop since 2Q14

▪ Exports (-28.3%; 1Q20: -7.3%): tumbled to a record low, chiefly due to a huge slump in travel and passenger service receipts on zero foreign tourist arrivals amid international border closures. Limited operation of factories and logistical hurdles across the globe have disrupted the supply chain, hence weighing on exports, especially for manufacturing goods. The downtrend was partially softened by a surge in gold shipments as gold prices were boosted by safe-haven demand.

▪ Imports (-23.3%; 1Q20: -3.1%): weighed by lower purchasing power of domestic consumers and a decline in imports of raw materials, such as fuel and electronic parts, as transportation and manufacturing activities were mostly halted by the lockdown measures.

● Sector-wise, worsened performance was observed across all sectors excluding agriculture

− Services (-12.3%; 1Q20: -0.9%): suffered the heaviest blow, particularly for the wholesale, retail trade & repair of vehicles (- 9.8%; 1Q20: 4.8%), transportation & storage (-38.9%; 1Q20: -6.0%) and accommodation & food services (-50.2%; 1Q20: - 23.3%). These masked a rebound in the construction sub-sector (7.4%; 1Q20: -9.9%) amid heightened public construction activities.

− Industrial(-14.0%; 1Q20: -1.9%): a broad based decline, led by the manufacturing sub-sector (-14.4%; 1Q20: - 2.6%). Production across light industries (-8.5%), raw materials (-8.6%), and capital goods (-28.6) withered substantially reflecting weakness in overall demand condition.

− Agriculture (-3.2%; 1Q20: -9.8%): The overall drop was lessened by expansion in rubber and oil palm production. However, contraction remained as paddy, maize, cassava and pineapple yields were hit by the drought and low water level at most reservoirs and natural water resources.

● GDP growth contraction to ease in the following two quarters, with balance of risk remain tilted to the downside

− We project the economy to lessen its contraction in 3Q20 (-9.8%) and 4Q20 (-8.4%), bringing the whole year 2020 GDP forecast to -8.0% (2019: 2.4%), before rebounding to 4.1% in 2021. The gradual reopening of the economy since early May have allowed businesses to reopen and consumers to partake in purchasing activities, as evident in the improved June’s private consumption (-4.7% YoY; May: -11.5%) and investment indices (-12.1% YoY; May: -18.2%). Further disbursement of the announced stimulus packages in the 2H20 would also provide a positive spillover to private sector spending. However, the recovery would develop in a gradual manner as the tourism (~18.0% of GDP) and its related sectors would remain under pressure throughout the year as international borders would likely remain shut to foreign tourists.

− Downside risks to growth remain arising from worries over a global 2nd wave of COVID-19 infections, elevated US-CN trade tensions, over-appreciation of the THB, a prolonged drought condition and rising political unrest. These could potentially exacerbate financial market volatility and policy uncertainty, leading to further delays in global investment decisions.

● An unchanged policy rate of 0.50% is expected for the remainder of 2020, barring a 2nd wave of COVID-19 infections

− Underscored by the BoT’s less dovish monetary policy statement, emerging signs of an improved domestic activities, further disbursement of the fiscal stimulus in 2H20 and the aim of preserving its limited policy space.

Source: Kenanga Research - 18 Aug 2020