BANGKOK -- The Bank of Thailand on Wednesday lowered its economic forecast for Southeast Asia's second largest economy due to a third wave of COVID-19 infections, and kept its policy rate at 0.5%.
The bank revised its growth forecast for Thailand in 2021 and 2022 to 1.8% and 3.9%, respectively. Those figures are 1.2 percentage points lower for 2021 and 0.8 point lower for 2022 than its projection in March.
The central bank changed its view as the country became hit by a third COVID wave, which evolved after its previous forecast. The bank said that it now expects fewer foreign tourists and slacker domestic demand because of the third wave which has also made the local labor market more fragile.
"Downside risks to the economic outlook also remained significant from the possibility of the outbreak situation in Thailand and abroad becoming more severe owing to virus mutations," the bank said in a statement.
The Bank of Thailand projected that Thailand would be able to welcome only 700,000 tourists in 2021 and 10 million in 2022. In May, the bank developed three scenarios of economic growth based on projected recovery in tourism, separately from its official economic projections made every two policy meetings.
In its best-case scenario, it expects 1.2 million tourists in 2021 and 15 million in 2022 to bring Thailand's economic growth to 2.0% and 4.7% respectively. The fall in international visitors was reflected in the new projections.
The bank's pessimistic outlook comes despite the Thai government's efforts to reopen the kingdom early for vaccinated travelers. On June 16, Prime Minister Prayuth Chan-ocha unveiled an ambitious plan to start allowing, within 120 days, vaccinated travelers to roam the country.
Originally the government had planned to reopen the country after it had fully inoculated 70% of its residents and achieved herd immunity. It is now aiming to give one jab to 70% of the population by mid-October, around the time that it is planning to reopen to vaccinated foreigners.
Tourism and related businesses used to account for 20% of Thailand's gross domestic product before COVID-19 hit.
The bank said higher public expenditure and improving merchandise exports in line with the global economic recovery would help support the economy. "The government should accelerate the disbursement of relief and other fiscal support measures to provide adequate and continuous economic stimulus as well as address vulnerabilities in the labor market," the central bank suggested.
The Bank of Thailand cut its policy rate thrice in 2020 -- each by 0.25% -- to a record low before Gov. Sethaput Suthiwartnarueput took over the position in October 2020 from Veerathai Santiprabhob. Sethaput faces a difficult task of managing monetary policy with limited tools.