UPDATE 1-Thailand cuts economic outlook despite smaller Q4 GDP fall

(Adds detail, analysts’ comments)

* Q4 GDP -4.2% y/y vs -5.4% in Reuters poll

* 2020 GDP -6.1%, weakest in over two decades

* Agency cuts 2021 GDP growth outlook to 2.5-3.5% from 3.5-4.5%

* 2021 exports seen +5.8% vs +4.2% projected earlier

BANGKOK, Feb 15 (Reuters) – Thailand cut its estimate for economic growth this year to 2.5-3.5% after suffering its worst slump in more than two decades in 2020 due to the shock from the COVID-19 pandemic.

The government had previously forecast growth 3.5-4.5% for this year, and the downward revision comes despite latest data showing the economy shrank less than expected in the October-December as domestic activity and exports recovered after coronavirus restrictions were eased.

The vital tourism sector remains in limbo because of international travel restrictions, and a COVID-19 outbreak in December has dealt a further blow to the country’s fledgling recovery.

Southeast Asia’s second-largest economy shrank 4.2% in the final quarter of 2020 from a year earlier, after a 6.4% contraction in the previous three months, National Economic and Social Development Council data showed on Monday.

On a quarterly basis, the economy expanded a seasonally adjusted 1.3% in the December quarter, after a revised 6.2% expansion in the September quarter.

Economists in a Reuters poll had forecast the economy would shrink 5.4% year-on-year and grow 0.8% quarter-on-quarter.

In 2020, the economy contracted 6.1%, the biggest fall since 1998, during the Asian financial crisis.

Thailand had largely contained the spread of coronavirus by mid-2020 but new cases detected in December have led to infections across the country and slowed consumption and domestic travel.

The NESDC now expects exports, also a key driver of growth, to rise 5.8% this year, rather than expand 4.2%.

But it also forecasts just 3.2 million foreign tourists this year, down from an earlier forecast of 5 million arrivals.

Last year, there were only 6.7 million foreign tourists versus nearly 40 million arrivals in 2019.

The government has supported the economy with a 1.9 trillion baht ($63.61 billion) stimulus package, while the central bank has slashed interest rates by 75 basis points last year to a record low of 0.50%.

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