Cautious recovery

Thailand’s economic recovery in 2021 was subdued as renewed mobility restrictions to contain fresh COVID-19 outbreaks weighed on economic activity, especially household consumption, and delayed the tourism rebound. However, we expect Thailand’s growth momentum to accelerate in 2022, with external demand, particularly for merchandise exports (48% of GDP), remaining a key driver of growth over the year. Meanwhile, services exports, mainly tourism-related services, should gradually pick up. In 2021, tourist arrivals from January-October were less than 1% of 2019 levels (40 million). But as global travel restrictions are likely to be loosened in 2022, the tourism sector should see a gradual recovery, contingent on the development of the Omicron variant and further emergence of concerning variants, as well as any prolonged international travel restrictions in China (28% of 2019 tourist arrivals in Thailand).

Private consumption (49% of GDP) growth was meager in 2021. While the pace is expected to accelerate in 2022 as mobility improves, the extent of development may be restrained by a weak labor market, tepid wage growth, and high household debt (85-90% of GDP).

Meanwhile, the government announced lower fiscal spending for the fiscal year 2022 (FY22) at THB 3.1 trillion, down nearly 6% from the FY2021 budget, though expenditures for Finance, Public Health, and Social Development have been expanded. The allocation for public investment also fell to THB 465 billion, from THB 500 billion, with slow disbursement being an implementation risk. Thailand has planned a pipeline of 77 mega-infrastructure projects worth THB 1 trillion (USD 30 billion) between 2020 and 2027 to increase connectivity and support long-term economic development. Four projects (THB 160 billion) focusing on mass rapid transit construction and highway improvements under the public-private partnership arrangement were announced in 2021.

Rising public debt

The sizeable fiscal stimulus response to support the economy and public health saw Thailand’s public debt increase from 41.2% of GDP in end-2019 to 59% in October 2021, though still below the raised debt ceiling of 70%. However, most public debt is long-term (85.7%) and domestically sourced (98.2%). Foreign currency debt is only 1.8% (of total public debt), with all direct government external debt borrowed from the World Bank, Asian Development Bank, and foreign governments. Off-budget expenditure was, meanwhile, supported by legislated borrowing of THB 1.9 trillion in three emergency decrees during 2020 and a new set of emergency loans (THB 500 billion) in May 2021. While the budget deficit is expected to narrow in the fiscal year 2022 (FY22), the projected budgetary shortfall suggests that additional pressure remains on Thailand’s public debt profile. Consequently, the authorities expect public debt to rise to 62.6% of GDP in FY22.

The current account balance is expected to have fallen into a slight deficit in 2021. The goods trade surplus should have shrunk as imports recovered faster. In contrast, the services trade deficit would have widened significantly due to a surge in freight payments and severely-reduced tourism receipts. We expect the current account balance to return to a modest surplus in 2022, helped by an expected gradual recovery in tourism and a slight reduction in transport service payments. Growth in goods exports should remain solid on robust global demand. An improvement in the current account position would also support the baht, one of the worst-performing Asian currencies (-10% against USD in Jan-Oct 2021).

Return of protests

After fading for much of 2021, political protests returned to Bangkok later in the year after the easing of mobility restrictions, with demonstrators again calling for the PM’s resignation and reforms to the monarchy and government. The following general election must be held by the first quarter of 2023, but there is growing speculation of the polls being brought forward to as early as 2022. The ruling coalition has a slim majority in the parliament (55%), with the Palang Pracharath Party the largest at 24%. Meanwhile, a constitutional amendment in September 2021 to restore the pre-2017 parallel voting system, where a voter casts two ballots, one for the constituency parliamentary candidate and one for the party of their choice, is expected to favor larger parties in winning more seats.