Mr Stephen Schwartz, Senior Director and Head of Asia-Pacific Sovereigns at Fitch, commented on the global economy, noting that strong external demand should continue to support Thailand’s exports. However, he noted that supply constraints are limiting the pace of global recovery and contributing to price rises in the US. Fitch expects the US Federal Reserve to begin tapering next month, but for interest rate increases to begin only in 2023.

The regional outlook has been set back by a slowdown in China and the recent surge in the Delta Covid-19 variant. However, a significant improvement in vaccination rates for most Asian sovereigns over 2H21 should put their recovery from the pandemic shock on a firmer footing. We expect the region to average growth of 6.3% in 2021 and 5.3% in 2022 as pandemic-related restrictions are gradually lifted. This compares with our forecast growth in Thailand of just 0.8% and 4.8%, respectively, where vaccination rates are picking up after a slow start. Slower growth in China, together with US Federal Reserve tapering, could be negative for Asia’s emerging and frontier markets.

Mr Parson Singha, Senior Director of Financial Institutions at Fitch Ratings Thailand, highlighted that Thai banks’ asset quality remains obscured by ongoing regulatory measures; around 14% of commercial bank loans are under regulatory relief, and there is also forbearance on loan classifications. Fitch expects the SME segment, which accounts for around 23% of loans, to remain under particular pressure from weak business and economic activity. Fitch believes non-performing loans will continue to rise and profitability will remain challenged in 2022, but Thai banks have built up reasonable reserves and capital buffers. Credit losses should remain manageable across south-east Asian emerging markets, although loss absorption buffers differ by country.

Mr Obboon Thirachit, Director of Corporate Ratings at Fitch Ratings Thailand, said the recovery in the Thai economy should support continued earnings growth for domestic Fitch-rated corporates in 2022. Most sectors, including oil, gas and petrochemicals – which were hardest hit in 2020 – are now on Stable Outlook, with earnings recovering to pre-pandemic levels. The retail and hospitality sectors, which were heavily affected by the resurgence of Covid-19 cases and travel restrictions in 2021, should see a gradual improvement in 2022, although a recovery to pre-pandemic levels could take another two years.

Thai corporates are stepping up their investment and M&A to support medium-term growth, digitalisation and low-carbon business transformation. This will keep financial leverage elevated and constrain rating improvement.