Country Focus

Key growth drivers of trade and tourism still face headwinds from COVID-19

After an estimated domestic economic contraction of 7.8% in 2020, we forecast an expansion of 6.0% in 2021, higher than the Bank of Thailand’s (BOT) forecast of 3.6% (Figure R3). The recovery is slower than previously thought, mainly due to declining Thai merchandise exports and a sharp decline in tourism receipts. Although Thailand had relative success in managing the pandemic, foreign tourism earnings are down significantly. On a brighter note, government spending should soften any further downturn.

Headline inflation is likely to gradually rise in 2021 but stay close to the lower band of the BOT’s target range.

Equities

The current headwinds for the equity market mostly stem from tight valuations and the slower-than-expected domestic recovery. But with consensus for forecasted earnings growth in Thailand expected to see a rebound in 2021, the benchmark Stock Exchange of Thailand (SET index) will likely trade between 1,100 and 1,450. We favour a balanced mix between defensive sectors, such as Utilities, Infrastructure and Telecommunication companies, and sectors that benefit from a post-vaccine return-to-normal, such as Tourism, Healthcare and Transportation.

Fixed Income

As the US Federal Reserve continues to keep monetary policy loose for an extended period, we expect the Bank of Thailand (BOT) to stay firm on its policies. This widens the Thai-US rate differential, which in turn attracts more capital inflows and pushes down Thai bond yields.

Currency

We forecast the Thai Baht (THB) to maintain at around 30.5 against the USD in Q3 2021. This reflects internal challenges related to lower tourism-related revenue, declining Thai merchandise exports and the current account being revised downwards. External pressures have come from a second COVID-19 wave and continued US-China trade tension.