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(Bloomberg Opinion) -- Outside China, Thailand has the largest number of patients infected by the novel coronavirus. Unfortunately, the export-reliant $500 billion economy, Southeast Asia’s second-largest, was sickly even before the outbreak of the pneumonia-like illness. That reflects simultaneous blows from the Sino-U.S. trade war, the worst drought in decades and a stubbornly strong currency. Add in Beijing’s newly imposed restrictions on Chinese travelers, who account for the lion's share of arrivals, plus the knock-on effect on other tourists, and a recession begins to look imminent.
Thailand has lagged its Southeast Asian neighbors for some time. While political upheaval has been a major drag, there are others too: an aging population, poor productivity, flatlining consumption and hefty household debt. The central bank now expects GDP growth of 2.5% for 2019. That’s considerably worse than even lackluster peers like Malaysia and Indonesia, and the country’s weakest pace since 2014, the year a military junta took power.
Exports also shrank in 2019, with shipments in the key carmaking industry declining. Thailand is a regional hub for vehicle manufacturers like Nissan Motor Co., which have been affected by poor demand in major markets such as China.
Then there’s the baht. The Thai currency outperformed last year despite policymakers’ efforts, on the back of a yawning current account surplus, weak inflation and near-record foreign exchange reserves. The baht’s recent weakening has been one of the few positive side-effects of the coronavirus epidemic. In November, Thailand relaxed rules on capital outflows to ease upward pressure, but central bank officials know that too much tinkering in the market could prompt Washington to label it a currency manipulator.
Meanwhile, fiscal stimulus, including an infrastructure drive, was held up by wrangling around the 2020 government budget. An interest rate cut this coming week, to a record low of 1%, looks likely.
So the year had already started poorly. Now, with 19 confirmed cases of novel coronavirus, most of them Chinese travelers, and the illness spreading fast, it looks a whole lot worse. In the third quarter, the economy expanded only 0.1% compared to the previous three months. Analysts say fourth-quarter numbers, reported this month, could show a slip into negative territory. A further contraction in the first three months of 2020 would put Thailand into a technical recession.
The first and most direct factor is tourism. Depending on how you measure it, the industry accounts for roughly a fifth of Thailand’s GDP. Visitor numbers were already depressed by the strong baht, which made other tropical destinations cheaper. Chinese tourists, who were supposed to flock back as the impact of a 2018 boat disaster waned, were trickling in only slowly.