BANGKOK -- Thailand recorded the largest economic contraction in 22 years in the quarter ending June, keeping Southeast Asia's second-largest economy trapped in a coronavirus-induced recession.
Gross domestic product shrank 12.2% in the second quarter compared to the same period the previous year, the Office of the National Economic and Social Development Council, the kingdom's economic planning agency, announced on Monday. It is the biggest contraction since 1998 when Thailand posted a 12.5% contraction recorded in the second quarter because of the Asian Financial Crisis.
On a seasonally-adjusted quarterly basis, the economy shrank by 9.7% in the April-June period, following a 0.3% contraction in the fourth quarter of 2019 and 2.5% shrinkage in the first three months of 2020. A technical recession is defined as two consecutive quarters of negative economic growth.
The kingdom closed its borders and implemented business lockdowns in an attempt to contain the COVID-19 epidemic. Shopping malls were forced to shutter for nearly two months from the end of March to the middle of May. Most restrictions have now been lifted and foreign visitors such as work-permit holders and their families are being allowed to enter. But the second quarter was when the economic impact of efforts to contain the pandemic was most vividly reflected.
Exports shrank by 28.3% compared with the same period last year, as spending by nonresidents, including tourists, is counted as the export of services. Due to a landing ban on international passenger flights, the kingdom had zero tourist arrivals so, naturally, zero tourist spending, according to the Ministry of Tourism and Sports. Exports of goods were subdued as well, reflecting the global economic slowdown.
Private investment fell 15.0%. Companies halted or postponed investment as fears of falling demand came true. Private consumption contracted 6.6% because of business lockdowns and a nighttime curfew, also now scrapped.
The coronavirus pandemic is expected to apply prolonged and adverse pressure on the Thai economy. The Office of the National Economic and Social Development Council said it forecasts a yearly contraction of 7.3%-7.8%, with the median of down 7.5% in 2020, marking a downward revision from its previous outlook in May for GDP to shrink 5%-6% this year. The forecast this year is based on the assumption that there would be no second wave of the COVID-19 pandemic.
Its original outlook in February was for growth of 1.5% to 2.5%. The worst year for Thai economy was in 1998, when it recorded a 7.6% contraction due to the Asian Financial Crisis.
The Tourism Authority of Thailand said revenue from international visitors in 2021 under its base-case scenario could shrink to 618 billion baht ($20 billion), or about 32% of the 1.9 trillion earned in 2019. Its worst-case scenario has that revenue falling to 298 billion baht.
Prime Minister Prayuth Chan-ocha's administration has implemented major economic stimulus packages, including cash handouts to informal workers and domestic tourists. Prayuth also plucked new economic ministers from the private sector to steer the economy, replacing a faction led by Somkid Jatusripitak, a former deputy prime minister, that managed economic policy for nearly five years until mid-July.
Deputy Prime Minister and Energy Minister Supattanapong Punmeechaow and Finance Minister Predee Daochai are key members of the new economic team. The two were among new ministers who took their oaths before King Maha Vajiralongkorn on Wednesday. Supattanapong was former president and CEO of PTT Global Chemical, while Predee was co-president of Kasikornbank and chairman of the Thai Bankers' Association.
Salvaging the Thai economy is an urgent task for former army general Prayuth. Discontent toward the current regime, including economic underperformance, has on Sunday fueled peaceful protests initially led by students to evolve as the largest political gathering Thailand has seen since the military staged a coup in 2014. Tens of thousands of protestors called for bold reforms, including even the country's revered monarchy.