Advertisement

Thailand's already fragile economy threatened by coronavirus

Thailand was already suffering from effects of the US-China trade war and its worst drought in decades; now the coronavirus threatens to damage its tourist economy.

The Thai economy is in trouble, says Clara Ferreira Marques on Bloomberg. Southeast Asia’s second-biggest economy was already suffering from the “simultaneous blows” of the US-China trade war and the worst drought in decades. Now the coronavirus threatens to put the squeeze on its vital tourist economy. Local stocks have taken a battering, but “it’s hard to argue that pessimism is overdone”. The local SET stock index is down more than 4% since the start of the year.

Advertisement - Article continues below

A global slowdown and strong Thai baht saw Thailand experience the slowest growth in five years last year, says Masayuki Yuda for the Nikkei Asian Review. The economy grew by just 2.4%. That compares unfavourably with annual growth rates of 4%-7% in neighbours such as Malaysia, Indonesia and Vietnam. 

Ill-prepared for the fallout

Those underwhelming growth figures show that the economy was “in a poor state” even before the coronavirus outbreak, says Gareth Leather of Capital Economics. The economy now looks on course for a sharp contraction in the first quarter of this year, with economic growth for the year as a whole likely to come in at just 1%. Exports to China make up over 5% of Thai GDP and local textile, automotive and electronics operators are likely to feel the adverse effects of regional supply-chain disruption.

Thailand welcomed almost 40 million foreign visitors last year, including 11 million Chinese arrivals, says Kitiphong Thaichareon for Reuters. Spending by foreign tourists accounts for 11% of GDP and the sector as a whole makes up roughly one-fifth of the economy. Yet the tourism ministry is predicting five million fewer arrivals this year because of the virus, which is likely to mean a 1.5% hit to GDP, says the central bank.

That reliance on tourism is forcing Thai authorities to make difficult choices, says The Economist. “All countries must balance their fear” of the coronavirus epidemic against the “damage caused by measures to contain it”. Unlike many other governments, Thailand has “neither restricted Chinese tourist” visits nor even tightened its liberal visa-on-arrival policy. The economic logic is clear, but the lack of restrictions smacks of “desperation”. 

On a cyclically adjusted price/earnings ratio of 15.9 the stockmarket is valued similarly to others in southeast Asia, but it compares unfavourably in other respects. Thailand’s continual political instability has hampered economic development and investment. The 2014 coup that brought the current regime to power was the twelfth since 1932. The country also faces an “ageing population, poor productivity, flatlining consumption and hefty household debt,” says Ferreira Marques. There is little reason to buy in.

Advertisement
Advertisement

Recommended

Bullish investors return to emerging markets
Stockmarkets

Bullish investors return to emerging markets

The ink had barely dried on the US-China trade deal before the bulls began pouring into emerging markets.
27 Jan 2020
The coronavirus is scary – but it's irrelevant to your investments
Investment strategy

The coronavirus is scary – but it's irrelevant to your investments

The spread of the coronavirus is causing alarm around the world. And, while it could be a serious short-term threat to human health, it’s not somethin…
24 Jan 2020
Beware the hidden risks when investing in emerging markets
Investment strategy

Beware the hidden risks when investing in emerging markets

Emerging markets look cheap compared with developed countries, but earnings may be less trustworthy.
23 Dec 2019
Emerging markets: buy when the news is bad
Emerging markets

Emerging markets: buy when the news is bad

Emerging markets are being squeezed by local turmoil and by more general factors. But bad news can spell opportunity for investors.
5 Nov 2019

Most Popular

Can Rishi Sunak save the economy with stamp duty cuts and half-price meal deals?
UK Economy

Can Rishi Sunak save the economy with stamp duty cuts and half-price meal deals?

John Stepek runs his eye over the chancellor's £30bn stimulus package and asks if it's enough to get the economy back on its feet after months of lock…
9 Jul 2020
An economics lesson from my barber
Inflation

An economics lesson from my barber

On reopening his shop after lockdown, Dominic Frisby’s barber doubled his prices. It’s all part of the post-Covid inflation process – and we’re going …
8 Jul 2020
What gold, bonds and tech stocks have in common
Stockmarkets

What gold, bonds and tech stocks have in common

"Risk off" or "safe haven" assets such as gold and government bonds have been doing well lately. But so have riskier tech stocks. That seems to defy c…
10 Jul 2020