Five key economic challenges of 2022
For the third year in a row, Thailand’s and the global economic recovery will hinge on progress in fighting the COVID outbreak. Consumers, businesses, and policymakers will face five key challenges in 2022.
The rising cost of living combined with a decline in income has started to make people vulnerable to any kind of coming shocks. It has become imperative for the government, businesses, and consumers to remain prepared to play their roles properly in order to ride out the difficulties.
Thai PBS World’s Business Desk examines the five key areas of concern this year.
Challenge of business-as-usual amid COVID
Keeping economic activities open while whittling down the number of COVID-19 cases will be a major task before the authorities.
The government has imposed some restrictions as a precaution against the surge in new cases caused by the Delta and Omicron variants. The government has raised its surveillance to level four with 69 provinces labeled as orange zone.
Eight provinces popular among tourists have been designated blue zone, allowing customers in restaurants to drink alcoholic beverages until 9pm.
“The latest actions of the authorities sound rational and it is likely to try and avoid lockdowns, as the government does not have much financial resources to compensate employers and workers,” said Viroj Na Ranong, research director at Thailand Development Research Institute (TDRI).
Last year the government shut down construction sites, several major fresh markets and some factories where workers were found infected, largely by the Delta variant.
The resumption of some restrictions after reopening the country to foreign tourists in November, suggests that the government is waiting to gauge the impact of the Omicron variant. Some studies indicate that it was less severe than Delta. Unless there is a sharp surge in infections, overwhelming hospitals, the government is unlikely to impose severe lockdown restrictions.
Some market analysts predict Omicron to soon fade away.
“We expect the impact of Omicron to end in the first quarter of the year,” said Sukit Udomsirikul, chief research officer at SCB Securities Co.
Viroj however was pessimistic, arguing that Delta took about five months before subsiding recently.
There is some good news that Omicron may cause only mild illness and the chance of hospitalization is lower. “The Thai government and Thai people have also done their best by wearing face masks which have helped to protect most of them from infections,” said Viroj.
The government may need to make a study on whether the current type of face masks could protect people from the highly transmissible Omicron variant, he added.
Risk of serious supply chain disruption
If the latest COVID wave in Thailand and around the world becomes severe, it would disrupt the global supply chain. Factories may have to shut their operations and infected workers may have to be hospitalized, pressuring the health system, or seaports may be forced to close.
“Disruption of the global supply chain could become serious again after it was recently eased to some extent,” said Bank of Thailand (BOT) senior director Chayawadee Chai-Anant.
This could also have a negative impact on some Thai exports, she warned.
Exporters have worried about supply chain disruption and the high cost of goods transport since last year and it would also be a cause for concern in 2022, according to Chaichan Chareonsuk, chairman of the Thai National Shippers’ Council.
Against the backdrop of supply chain disruption and shortage of good containers, Thailand was able to achieve double-digit export growth last year, thanks to a robust global recovery driven by developed countries. As global economic growth is expected to decelerate this year, Thailand’s exports are also expected to expand at a slower pace of around 5-8 percent compared to the estimated 15-16 percent last year.
Rising cost of living
Disruption in the supply chain could push up the prices of goods and services. Consumers are already faced with the problem of the rising cost of living due to higher bills for fresh foods and energy.
A sharp fall in supplies of pork caused by a swine epidemic combined with pent-up demand has already driven pork prices up 30 percent from last year, the highest in 10 years, according to Kasikorn Research Centre. Pork prices are predicted to stay at around Bt190-220 per kilogram this year. In an attempt to address the issue of the rising cost of living, the government has announced measures, including compensating swine farmers affected by African swine flu.
In addition, the prices of eggs and chicken meat — foods that everyone can usually afford — have also surged.
Kasikorn said prices of fresh vegetables and cooking oil have a tendency to rise. The rising trend will cost each consumer an extra 8-10 percent on food per month, the research house predicted.
The rise in petrol prices has impacted motorists and people who use private transport. In a respite to consumers, the Energy Policy and Planning Committee on January 10 decided to defer a hike in cooking gas prices to the end of March. Electricity bills have also increased this month due to pressure from higher oil and natural gas prices.
Predictions of a fast increase in inflation in the United States may also up financial costs in Thailand if the US Federal Reserve hikes interest rates sooner than expected. Market analysts predict the Fed may jack up its policy rates three times this year — in March, June, and November.
A rate hike in the US will put pressure on Thailand too, as the BOT may also have to raise its policy rates to stem possible capital outflows and exchange rate volatility.
Financial costs may rise in 2022, says Chatchai Sirilai, president of Government Housing Bank.
Despite the central bank keeping the short-term interest rates unchanged, long-term interest in the market has already risen, judging by bond yields. Property developers will face a rising cost of funding if they issue corporate bonds to raise funds, and they could pass on the cost to home buyers.
Any increase in interest rates will be bad news for debtors who have to pay installments on their mortgages or for the hire-purchase of cars.
Getting out of the debt trap
The government realizes that household debt and small business debt are serious issues that cast a dark shadow over the economy, so it announced it would focus this year on resolving the debt crisis of retail borrowers.
Household debt in the second quarter of last year stood at Bt14.3 trillion, equivalent to 89.3 percent of gross domestic product.
Even state officials, especially teachers and police, are trapped in debt. New graduates have to repay their student loans. Small businesses are still struggling to access credit.
The government has directed the Finance Ministry, the BOT, and state-run banks to step up efforts on debt restructuring by extending the loan repayment period and cutting the interest rate. The central bank and financial institutions have implemented debt restructuring measures since the COVID outbreak in 2020.
Will the fragile labour market improve this year?
The current labour market, which saw non-farm payroll drop 1.3 percent year on year in the third quarter of last year, may not fully recover if many businesses continue to struggle under the impact of COVID and the government takes recourse to restrictive measures.
“New graduates will face difficulty in finding jobs. And some 3 million to 4 million workers whose incomes have declined may not recoup the losses suffered by them from cuts in working hours or pay cuts imposed by employers,” says Yongyuth Chalamwong, research director at TDRI.
The government will run out of funds to continue supporting temporary job schemes implemented in 2020 and 2021.
He suggested that the government extend its scheme of hiring volunteer healthcare workers.
This could help new graduates find jobs and they could be trained to be professional caregivers who will serve an ageing society, Yongyuth added.
By Thai PBS World’s Business Desk