As China grapples with the coronavirus, its economic impact is being felt by almost all major economies worldwide. However, one country in particular, Thailand, is feeling the financial impact of coronavirus harder than others. The country’s sluggish economy owing to an ageing population and weak domestic investment is expected to magnify the impact of coronavirus.
Already in crisis
China is the second-biggest economy globally and a leading trading nation. So, it is expected that China’s financial sneeze would give the flu to many countries around the world. Reuters, which surveyed economists between Feb. 7-13, notes that China’s growth is expected to drop to 4.5 percent in the first quarter, from the 6 percent in the previous quarter. If it holds true, it would be the slowest growth since the financial crisis.
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Though many countries trade with China, a few countries rely on the dragon nation more heavily than others. One such country is Thailand, which is also among the high-risk countries for coronavirus.
China’s coronavirus outbreak had hit the country at a time when it was already dealing with a weak economy. For the third quarter of 2019, Thailand’s economic growth dropped to 2.4 percent. As per the figures from NESDC (National Economic and Social Development Council), GDP growth for the fourth quarter dropped to 1.6 percent year-over-year owing to a continued fall in exports, severe drought and the budget delay.
Domestic demand in the country is also weakening. In the third quarter last year, the overall contribution of domestic demand to headline GDP growth dropped to 1.7pp from 3.3pp, notes a report from Nomura.
Thailand: Financial impact of coronavirus
With China being the biggest exporter to Thailand, the impact on the country’s trade is imminent. China represents about 20 percent of all of Thailand’s imports. Thai textiles, automotive and electronics sectors would witness the maximum disruption due to factory closures in China.
Moreover, as per a report from Reuters, Thailand’s exports to China are expected to drop by about $65 million. Exports to China represent about 5 percent of Thailand’s GDP.
In the second quarter last year, Thailand’s total export dropped by 7.9 percent, and was similarly the case in the third quarter. At the time, the service sector somewhat compensated for the slowdown in the manufacturing sector, but it may not do so again in the first quarter this year.
Apart from exports and imports, coronavirus is also expected to impact the tourism industry in Thailand. Tourism is an important part of the Thai economy with Chinese tourists accounting for the majority of the tourist population in the country. Tourist spending represents about 12 percent of the country’s GDP, with about one-third coming from Chinese tourists.
Following the outbreak, the number of tourists visiting the country has already gone down. The latest airport arrivals data shows that the number of visitors in the country has already dropped by about 40 to 50 percent since the start of the crisis in late January. As per the estimates from the Thai Tourism Ministry, the deadly virus could lead to a loss of 50 billion baht ($1.52 billion) in revenue for the tourism industry.
Thailand: what is it doing?
The NESDC has already lowered its growth forecast for 2020 owing to the outbreak and the current headwinds. Thailand’s 2020 GDP growth is expected to be between 1.5-2.5 percent from the previous forecast of 2.7-3.7 percent. Thailand’s GDP growth for 2019 was 2.4 percent, compared to 4.2 percent in 2018, notes a report from Nomura.
Nomura analysts maintain their 2020 GDP growth forecast for the country at 1.9 percent. Capital Economics analysts are expecting economic growth to slow to 1.0 percent this year.
Considering the size of Thailand’s economy, its dependence on the Chinese economy and the fact that it is already going through crisis, one may argue that it could feel a bigger financial impact of coronavirus than China.
Realizing the potential financial impact of coronavirus on Thailand, authorities have taken a slew of fiscal measures to minimize its impact. Monetary authorities recently revealed plans to lower the policy rate from 1.25 percent to 1 percent. The authorities noted that the country is financially vulnerable, and thus, accommodative monetary policies would support in reducing the negative impact of coronavirus.
Next steps to stem the financial impact of coronavirus
Nomura analysts expect a further cut in the policy rate by 25bp in the second quarter. The analysts expect the announcement for the same to come as early as March.
Apart from the monetary measures, Thai authorities are taking non-monetary measures to minimize impact of coronavirus, particularly in tourism industry. For instance, the authorities are assuring visitors of all measures to prevent the spread of the virus, such as placing screening systems at popular tourist spots, providing sanitizers and masks at popular tourist spots, disinfecting public transportation and more.
Authorities in Thailand are even considering limiting the export of surgical masks to avoid any shortages in the country. Thailand exports about 400 million masks a year, which could have a financial impact on manufacturers.