Fitch offers balanced Thai forecast
Vulnerability of tourism highlighted
Fitch Ratings has lowered its outlook on Thailand’s long-term foreign currency issuer default rating to stable from positive, reflecting impacts of the coronavirus spread on Thailand’s economy through its tourism sector and lingering political uncertainty after the country’s transition to civilian rule.
At the same time, the international credit rating agency affirmed the country’s rating of BBB+, indicating sound external and public finances, which serve as cushions against economic and financial shocks.
These strengths are balanced by weaker structural features relative to peers, including lower World Bank governance scores and, to a lesser extent, lower income per capita, Fitch said in a release.
Fitch forecasts that Thailand’s economic growth will weaken to 1% in 2020 from 2.4% in 2019, largely due to the pandemic, marking a second consecutive year of slowing growth and the lowest pace of expansion since 2014.
The growth outlook for 2020 is subject to considerable downside risk because of the uncertainty surrounding the duration of the virus shock, Fitch said.
Thailand’s tourism sector is especially vulnerable. The sector and related business account for about 20% of GDP, according to the Bank of Thailand.
Preliminary figures indicate that tourist arrivals for the month of February declined by 44% year-on-year.
“Our baseline assumes the global outbreak is gradually contained, setting the stage for a gradual recovery of tourism inflow,” Fitch said.
In the meantime, other factors are supporting growth. In particular, the long-awaited approval of the fiscal 2020 budget will help to boost infrastructure investment in the remainder of this year.
The budget was delayed by over four months due to the lengthy formation of the new government coalition and legal issues about the validity of some parliamentary votes.
Jeremy Zook, associate director for Asia-Pacific sovereign ratings at Fitch, said the government has already announced a plan to mitigate impacts and has more fiscal policy space if needed.
“We expect one further rate cut at this point, but space is limited,” he said. “Thailand still has a buffer to manage the crisis or shock going forward over months or a year.”
The central bank at its last meeting cut the policy rate by 25 basis points to a historic low of 1%. The next rate call is set for next Wednesday.
The government has adopted various relief measures to support tourism and other sectors, such as tax breaks and extending the deadline for income tax returns from March to June.
More recently, officials approved an estimated 400-billion-baht stimulus package (proportionate to 2.4% of GDP), including targeted soft loans for small and mediumsized enterprises, to alleviate the impact of the pandemic on the slowing economy.
Additional stimulus measures, such as tax benefits, debt payment extensions and financial assistance, may be adopted to maintain the debtservice ability of households and small private businesses if downward pressure on the economy persists in the next few quarters.
“We expect momentum to regain traction in 2021, with growth projected at 3.8% as external and domestic demand gradually recover in line with regional trends,” Fitch said.
CORPORATE RATINGS
Among business sectors under Fitch’s coverage, oil & gas and petrochemical, telecommunications, and building materials are affected most by the country’s economic slowdown, the coronavirus spread and intense competition, said Obboon Thirachit, director for Thailand’s corporate ratings.
The oil & gas and petrochemical sector has seen a double whammy from the virus pandemic, resulting in a demand shock and a sharp plunge in oil prices, Mr Obboon said.
In the long run, Fitch reckons that the sector is exposed to risk from falling gas demand as electric vehicles and renewable energy gain traction, he said.
Telecoms are pressured by stiff competition and high outlays for 5G networks, while building materials firms face narrow margins amid oversupply in domestic and overseas markets.
Parson Singha, senior director for Thailand bank ratings, said financial risks will be contained amid the economic downturn.
Thai banks are well-capitalised, he said, with high excess provisions and sound liquidity, providing a buffer against potential shocks, particularly for low-income households.
“Their financial performance and asset quality this year will likely deteriorate from last year, but we aren’t much concern about [banking sector] stability, due to solid loss and liquidity buffers,” Mr Parson said.