An upswing in tourism from China’s reopening will help boost Thailand’s economy, but isn’t sufficient to restore growth to pre-pandemic levels just yet, according to analysts.
The country’s gross domestic product will probably expand 3.7% this year, according to the median estimate in a recent Bloomberg survey of economists. While that will make it the fastest expansion in five years, it’s still a long way off from the 4.2% growth seen in 2017 and 2018.
That’s because economists expect Chinese tourist arrivals to be about half of as much as 10 million that the government predicts will visit the “Land of Smiles” this year. Nine of the economists surveyed see the tourism sector staging a full recovery to pre-Covid levels from 2024.
About 28% of Thailand’s 40 million annual visitors before the pandemic were from China. Tourism accounts for at least 12% of the economy and a fifth of jobs while private consumption makes up 50% of GDP.
While inbound travellers are likely to surpass the government’s initial estimate of 25 million this year, shipments abroad are seen languishing as the global economy dims and the baht rebounds to near a 10-month high. A general election by May is also seen as a boon and a bane.
“It’s not clear how much the rising number of travellers will boost GDP growth,” according to National Economic and Social Development Council Secretary-General Danucha Pichayanan, who said the agency will review its growth projection – likely when it reports fourth quarter gross domestic product on Feb 17. “Weak global demand will hurt our exports significantly and will drag our GDP growth. We have both push and pull factors to consider.”
The Thai National Shippers Council expects exports to grow 1%-3% in 2023. They worry that the currency’s 5% gain, which has made it the region’s best performer so far this year, will erode price competitiveness. The baht has risen more than 15% since plunging to a 16-year low in October, buoyed as well by the prospects of China’s return to the tourism market.
The kingdom is estimated to have welcomed at least 11.5 million foreign travellers last year, surpassing the initial 10 million estimate, luring guests with longer-term visas, looser requirements and come-ons like the legalisation of weed for medical use. Inflation that hit a 14-year high in 2022 is expected to cool this year and will likely convince the central bank to pause shortly.
Still, tourism isn’t expected to inflate the economy fast enough amid weak global growth and prospects of slower government spending after the election, which Nomura Holdings Inc, in a Jan 13 note, said is “an under-appreciated risk”. A “fragmented outcome” of the vote could delay government spending, it said.
Election-related spending of at least 40 billion baht could boost GDP by as much as 0.3%, according to the University of the Thai Chamber of Commerce.
“A number of parties will campaign heavily, from poster printing to promotional cars,” said Thanavath Phonvichai, the university’s president. “The money will mainly go to low-to-middle income people, who will spend almost 100% of what they earn. The money will circulate quickly and double the impact on the economy.”