Thailand’s success in containing the coronavirus may not help its economy much

Thailand’s relative success in containing the coronavirus may do little to chart a smooth recovery for its economy, which could be one of Asia’s worst performing this year after the pandemic caused a slump in tourist arrivals, said economists.

Adding to concerns are intensifying anti-government protests that some analysts said could distract authorities from their priority of keeping the economy going.

Thailand on Monday reported its deepest economic contraction since the Asian financial crisis in 1998. The Southeast Asian economy shrank by 12.2% on year in the second quarter — better than the 13.3% contraction forecast by a Reuters poll.

The Thai economy relies heavily on tourism for growth. But foreign tourist arrivals have come to an almost complete stop and is not likely to recover soon, with the government reportedly shelving plans to open its borders to travelers from selected countries.

“The upshot is that despite getting the virus under control quickly, with tourism set to remain a massive drag on growth, the outlook for Thailand’s economy remains one of the worst in the region,” Alex Holmes, Asia economist at consultancy Capital Economics, wrote in a Monday note.

Holmes noted that “Thailand has gone over 80 days without a single case of community transmission,” but his forecast of a 9% annual contraction in the Thai economy this year is among the most pessimistic.

As of Monday, the country has reported over 3,300 confirmed coronavirus cases and 58 deaths, according to the department of disease control.

In addition to the tourism collapse, Thailand’s other growth engine — trade — has also been weak, said Barnabas Gan, economist at Singaporean lender United Overseas Bank. Gan wrote in a Monday note that he expects the economy to shrink by 7.5% this year, worse than his previous projection of a 5.4% contraction.

“The twin drivers, tourism and trade, have been lackluster at least in the first half of 2020. That could actually persist into the rest of the year,” he told CNBC’s “Squawk Box Asia” on Tuesday.

Anti-government protests that have intensified in recent weeks could further dampen Thailand’s economic recovery, said economists.

The country is no stranger to political uncertainties, having experienced one of the highest numbers of military coups in modern history. But over the weekend, more than 10,000 protesters gathered in the capital city of Bangkok in what some observers said is the biggest anti-government demonstration since a 2014 coup.

Among the demands from protesters are the resignation of Prime Minister Prayuth Chan-ocha’s government and an unprecedented call for reforms to the monarchy. The latter is a taboo subject that could land protesters in jail under the country’s lese majeste laws.  

“Recent political protests — with calls for reduction of military influence, constitutional amendment, new election and social reforms — could escalate and are another source of downside risks to domestic activities,” Nalin Chutchotitham, a Citi economist, wrote in a Monday note.

“Among many concerns, this could mean further delay of border reopening to tourists and revival of related businesses,” she said, adding that she expects the Thai economy to shrink by 8.6% this year.