Grant Thornton’s upcoming International Business Report (IBR) will be the most consequential report of its kind in recent memory. As the world's leading mid-market business survey, the IBR acts as a barometer for the private sector, reflecting the current business outlook as it appears from the inside. With widespread vaccine distribution allowing much of the world to finally reach the light at the end of the pandemic tunnel, the coming IBR will sketch the first complete picture of what the landscape looks like on the other side.
We will release analysis of the H2 2021 IBR in the coming weeks, but other studies have already begun outlining the general shape of things to come. Here we compile the key insights from a variety of sources – in particular this Fitch Ratings report – as they pertain to global, regional, and Thailand-based trends across sectors. Each of the following sections includes summary analysis by experts on our team.
Global trends
According to Fitch, worldwide GDP will grow by 6% overall in 2021, a modest increase given that 2020 was a historic outlier. Hopes for a faster recovery were dashed by continued COVID outbreaks, particularly involving the Delta variant, which slowed down supply lines for companies in a wide range of sectors.
Our own research also identified a lack of available finance, as well as excessive regulations and red tape, as additional obstacles for companies looking to re-establish a growth trajectory. Ian Pascoe, CEO and Managing Partner at Grant Thornton in Thailand, recommends factoring in these considerations at both a strategic and practical level. “Recovery depends on resources, so businesses should always take what they can get, as long as they can afford it. Build in some buffers in case of delay at any stage of the process,” he said.
Ratna Wright, Partner (Business Consulting), makes a similar point regarding the perceived scarcity of qualified personnel. “Many companies are short of talent these days,” she said. “But by welcoming a diverse workforce, and taking advantage of work-from-home options where appropriate, businesses can access a much larger talent pool.”
Other global issues worth watching include the risk of inflation, which can coincide with lower market demand, higher interest rates, and reduced profitability.
Regional trends
Across APAC, Fitch forecasts an average growth of “6.3% in 2021 and 5.3% in 2022, despite the impact of the recent COVID-19 waves, outpacing global growth (ex-APAC) in both years.” Economies that have successfully contained the virus and vaccinated their populations, such as China and Taiwan, will help to lead the region forward. Others such as Vietnam and the Philippines will get a late start, as private sector losses from recent outbreaks have greatly reduced access to finances in a number of industries.
Kesanee Srathongphool, Director (Audit) at Grant Thornton, describes the financial symptoms of a COVID outbreak. “The cost of credit increases alongside the number of stressed and non-performing loans,” she said. “At the same time, liquidity decreases, so even the healthier organisations have a harder time accessing the finances they need to increase production and turn a profit.”
Tanva Mahitivanichcha - Partner (Tax & Legal) puts these insights into a wider regional context. “Countries like Indonesia and the Philippines are losing momentum at the worst possible time,” she said. “As the post-vaccination recovery begins, companies in growing economies will woo investors and grab as many opportunities as they can, both domestically and across the region. There won’t be much left by the time these slower countries get back on their feet.”
Trends for Thailand
At the end of October, Thailand’s Finance Ministry once again lowered expectations for growth in 2021. The ministry is now forecasting just a 1% increase over 2020 – by no means the economic recovery that many had hoped for.
The turnaround is already underway, however, despite a late start. Following an expected contraction of 3.5% in 3Q 2021, the ministry anticipates 3% growth in the fourth quarter. Increases in exports and tourism will then push overall economic growth up to 4% in 2022, officials say. Still, meeting this target will require an increase in domestic spending, alongside real benefits stemming from government stimulus packages.
It will also require better numbers from the tourism sector. Thailand’s Fiscal Policy Office had previously forecasted 300,000 international visitors this year, but as of mid-October, just 100,000 had arrived. Jean-Paul Binot, Director - Business Process Outsourcing at Grant Thornton, expects this sector to improve – but only gradually. “International tourism flows from strong overseas economies, adventurous mindsets, and feelings of financial security,” he said. “Although Thailand’s decision to phase out quarantines is encouraging, the rest of the world hasn’t yet completed the economic or psychological transitions needed to make recreational travel popular again.”
Mergers and acquisitions are another area worth watching in Thailand over the coming months, as companies look to consolidate their market positions in order to leverage economies of scale and reduce competition. This M&A activity will, in large part, continue to be funded by debt in 2022.
Adulpol Charukesnunt, Associate Director (Financial Advisory Services) notes that such mergers and acquisitions should also be understood as part of a larger business restructuring trend. “Society has changed due to COVID, and the economy is changing with it,” he said. “Businesses in Thailand need to go digital, and one way to do that is to buy up other companies to absorb their digital assets. Similar processes will take place surrounding sustainability, with companies going green by buying companies that produce the necessary technology.”
Also key to Thailand’s recovery effort will be maintaining strong domestic consumption, despite an ageing population and high household debt.
Looking ahead
With newly reopened borders, a BBB+ rating and a stable outlook from Fitch, as well as higher fourth quarter estimates by the Finance Ministry, and additional details forthcoming in Grant Thornton’s International Business Report, Thailand and its economy are on the way up once again, at long last.
Although positive growth numbers will be more than welcome, Chris Cracknell, Chairman of Grant Thornton in Thailand, cautions that success for individual businesses is by no means guaranteed. “Well-run companies in stagnant industries can still perform well, just as poorly run companies in growing industries will tend to fall behind,” he said. “External variables like GDP are undoubtedly important, but business leaders should spend more time focusing on things they actually can control – like their own company’s strategy, structure, and operations.”
With deep expertise in all of these areas, Grant Thornton is perfectly positioned to guide businesses through the upcoming recovery phase and beyond. For world-class support through thick and thin, enabling your organisation to make the most of every opportunity in the post-pandemic economy, contact Grant Thornton in Thailand today.
