● Thailand’s GDP contraction eased in the 3Q20 (-6.4%; 2Q20: -12.1%), beating expectations (consensus: - 8.8%; KIBB: -9.8%)

• Primarily reflecting the disbursement of fiscal stimulus and resumption of economic activities following the relaxation of COVID-19 containment measures, domestically and globally.
• Seasonally adjusted QoQ: rebounded to register the largest expansion in over eight years (6.5%; 2Q20: - 9.9%), marking the end of a technical recession.

● The recovery was broad-based, steered by the domestic demand, largely from the private sector

• Domestic demand (-0.4%; 2Q20: -5.9%): smallest decline in three quarters
  • Private spending: underpinned by a softer contraction in private consumption (-0.6%; 2Q20: -6.8%), as spending on transportation (-15.8%; 2Q20: -35.4%) and recreation & culture (-15.7%; 2Q20: -38.7%) picked up following the lifting of most COVID-19 restrictions on 1st July. This was also attributed to improved consumer confidence (50.4; 2Q20: 48.2) as the government managed to keep the COVID-19 cases under control. Similarly, private investment contraction narrowed (-10.7%; 2Q20: -15.0%), primarily in machinery & equipment amid better revenue prospect.
  • Public spending: public investment growth accelerated to its highest in over four years (18.5%; 2Q20: 12.5%) as the government sped up its investment expenditure in the second half of the fiscal year following a five-month delay in the passing of the budget bill. Public consumption also rose (3.4%; 2Q20: 1.3%) to a six-quarter high on a bounce in social transfers (8.0%; 2Q20: -8.5%) as the government deployed various fiscal measures to stimulate private sector spending.
• Net exports (-51.5%; 2Q20: -98.1%):
  • Exports (-23.5%; 2Q20: -27.8%): fell by less on improved merchandise shipments, specifically manufacturing goods and mineral & fuel. This masked a steeper fall in service receipts, amid continued closure of international borders during the quarter.
  • Imports (-20.3%; 2Q20: -23.2%): supported by narrowed decline in imports of fuel lubricant and raw materials & intermediates, mirroring the increased manufacturing production activities (- 8.3%; 2Q20: -20.0).

● Sector-wise, the modest recovery was observed across all sectors, led by non-agriculture activities

• Services (-7.3%; 2Q20: -12.2%): marked a partial recovery towards the pre-pandemic level, led by transportation & storage (-23.6%; 2Q20: -38.8%) and accommodation & food services (-39.6%; 2Q20: - 50.2%). These reflected heightened domestic travelling activities (32.7m domestic visitors; 2Q20: 5.6m), supported by the substitute Songkran holidays and tourism stimulus packages (i.e. We Travel Together & Encouragement packages).
• Industrial (-5.8%; 2Q20: -14.2%): lifted largely by the manufacturing sub-sector (-5.3%; 2Q20: -14.6%). Production across light industries (-1.7%), raw materials (-3.7%), and capital goods (-11.6) shrank less amid improved demand condition, locally and externally.
• Agriculture (-0.9%; 2Q20: -3.3%): softest contraction in one year, as paddy (-4.2%) and rubber (-2.3%) production declined by less against a backdrop of the first increase in agricultural price index time in 3 quarters.

● GDP growth contraction to ease further in the final quarter of 2020, despite heightened growth headwinds

• 4Q20 GDP revised up to -4.7% (previous forecast: -8.4%) after incorporating the better-than-expected 3Q20 GDP figure. Consequently, the whole year 2020 GDP forecast has been upgraded to -6.2% (previous forecast: 8.0%; 2019: 2.4%), slightly below the Thailand’s National Economic and Social Development Council’s (NESDC) forecast of -6.0%. 2021 GDP forecast maintained at 4.1% (NESDC: 3.5-4.5%).
• The recovery is expected to continue in the near term, supported by a controlled domestic COVID-19 situation, extension of fiscal stimulus (e.g. fresh tax breaks, extended domestic tourism incentives and debt moratorium for the SMEs), additional holidays in November and December and the arrival of foreign tourists under the Special Tourist Visa.
• Downside risks to growth remain emanating from the global 2nd wave of COVID-19 infections which may weigh on trade recovery, over-appreciation of the THB, adverse weather condition and a prolonged political riots. These could jeopardise policy stability, hampering sentiments and leading to further delays in investment decisions.

● We reiterate our expectation of an unchanged policy rate of 0.50% for the remainder of 2020

• Backed by the BoT’s continued optimism and the goal of preserving its limited policy space.

Source: Kenanga Research - 17 Nov 2020