Explaining why foreigners perceive the growth of the Thai economy to be extremely low, especially with the ongoing protests, which are seen as potentially leading to the worst economic performance in Asia this year.

Last week, after the National Economic and Social Development Council announced a 12.2% contraction in GDP for the second quarter, CNBC contacted me for my opinion. This figure has led international analysts to view the Thai economy, which heavily relies on exports and tourism for growth, as likely to perform poorly without these driving forces. Additionally, the ongoing protests are seen as distracting the government from effectively managing the economy, leading to predictions of the worst economic performance in Asia this year. They sought my insights on this matter.

I understand this perspective but do not fully agree. Today, I would like to share my thoughts that I provided to fans of the "Economics Graduate" column.

This crisis is severe and impacts all sectors of the economy, but the hardest hit are medium, small, and micro businesses, particularly in the service, transport, and tourism sectors, which saw production shrink by 30-50% in the second quarter. According to a survey by the Asia Foundation during the second quarter, nearly 70% of Thais reported a decrease in income, with average monthly income dropping by about half, mostly among those in the informal sector. This is the reality we are facing.

The sharp decline in the economy during the second quarter was expected due to lockdown measures and the beginning of easing restrictions, along with relief measures. However, the 12.2% contraction was still lower than market expectations and less severe than in several countries in the region, such as Japan, Singapore, Malaysia, and the Philippines. We also see some sectors experiencing growth, such as exports in computers, fruits, animal feed, and processed foods, while essential goods consumption has increased, even as non-essential goods have contracted. The manufacturing sectors, such as construction, finance, insurance, and communications, also showed growth despite the overall economy contracting by 12.2%.

Therefore, it is possible that the second quarter will be the lowest point for the economy, leading to a gradual recovery in economic activity in the latter half of the year. However, the question that international analysts are raising is: What will drive the Thai economy in the second half if exports and tourism are not the main drivers?

In my view, the ongoing COVID-19 pandemic abroad, especially in major G20 economies, will hinder global economic recovery in the latter half of the year, affecting exports and tourism worldwide. Thus, any recovery in our economy during this period must come solely from domestic factors: private sector investment, household consumption, and public spending. I believe Thailand has sufficient potential to use domestic spending as a driver for economic recovery.

1. The private sector, including businesses and households, has the potential to increase spending. The domestic saving rate is as high as 33% of national income (according to World Bank data). However, due to high inequality in the country, purchasing power or spending ability is mainly concentrated among higher-income individuals and large businesses. The challenge is how to encourage these powerful groups to spend their savings to stimulate the economy. This is the first challenge.

2. Our fiscal policy space is adequate. The government has prepared over 10% of national income for economic stimulus, while the ratio of public debt to national income remains relatively low compared to many countries. The challenge is how to effectively allocate these funds to address issues without leakage and ensure efficiency, leading to job creation and income for the unemployed, allowing medium, small, and micro businesses to survive and maintain employment, and enabling businesses and the economy to adapt to the new economic world post-COVID. This is the challenge.

3. The stability of our economy is good, which will provide a foundation for economic activity to recover. These strengths include the status of the commercial banking system, foreign reserves, and low external debt levels. These factors will help the economy withstand shocks from the global economy, even as the global downturn intensifies. This strength must be maintained through policies that prioritize both recovery and economic stability.

However, a key condition for sustained domestic spending recovery in the latter half of the year is controlling the COVID-19 outbreak within the country to prevent a second wave, which is crucial for building confidence that encourages the private sector to resume spending and will lead to successful domestic-driven economic recovery.

This is the condition that Thailand still has at the moment. It is a condition that must be maintained to ensure continuous economic activity recovery in the latter half of the year.

Regarding the protests, I believe that the current protests are a global phenomenon occurring in over 30 countries for various reasons. The most notable cause is public dissatisfaction with government responses that have worsened people's living conditions. In our case, it is about the demand for a better political system that is more open and accountable, which directly affects policy implementation. Investors often view protests as a limitation to the economy because they see only the short-term impact. However, in the long run, if the quality of policy-making improves, the country's economy, investment, and the well-being of the people will benefit.

This is my opinion that I shared.

SOURCE: www.bangkokbiznews.com