Thailand on the Rebound

For Southeast Asia’s Land of Smiles – one of the world’s leading tourist destinations – the past two years of the pandemic have ravaged what was already an economy in the doldrums.

But at least the Kingdom had tourism – in 2019, in fact, a staggering 40 million tourists descended on Thailand’s beaches, spas, crocodile farms and wellness retreats. In December 2021, the number of tourists visiting Thailand was 230,97, the highest number it had seen since March 2020 – less than half a million tourists visited Thailand in 2021, a jaw-dropping 80-fold drop in arrivals.

The Omicron variants – and whatever else Covid-19 may deign to throw at us in the year ahead – notwithstanding, Thailand now appears ready to turn things around, both in terms of tourism and in terms of getting the economy back on track in general.

After a brief hiatus due to Omicron, Thailand resumed its “test-and-go” tourist regime on February 1. The program allows fully vaccinated travelers traveling by air from anywhere to skip mandatory quarantine, be tested on arrival and go on their way after a night in an appointed hotel if the test is negative.

Meanwhile, as Thailand’s tourism prospects improve, so does the economy overall. According to Bloomberg, Thailand’s finance ministry, as of late January 2022, is maintaining its forecast of 4% GDP growth this year, supported by a reviving tourism sector, exports and fiscal measures.

Exports jumped 23% in December year on year and imports rose 28.2%, while the trade surplus amounted to $2.8 million, according to the Bank of Thailand, as reported by the Bangkok Post.

This all provides room for cautious optimism. A year ago, at the dawn of 2021, Thailand was attempting to climb back – supported by some government stimulus and local demand – from multiple shocks that rippled countrywide, making 2020 Thailand’s worst year since the 1998 Asian financial crisis.

Caught unprepared

It is worth considering that Thailand, ASEAN’s second biggest economy ranked by annual GDP – was far from sustainably robust before the pandemic outbreak in January 2020. Economic growth actually slowed down between 2014 and 2018 and for more than a decade it has lagged behind its neighbors, in particular Vietnam.

From 2009 to 2019, Thailand averaged 3.6% annual GDP growth. Vietnam averaged 6.5%. Long before anyone had heard of Covid-19, commentators were pointing out that Thailand ran the risk of stumbling into an economic malaise bred by demographics, huge conglomerates and family-run businesses that stifle innovation and a stagnated poverty rate – along with high household debt (at 80% of GDP, among the highest in the region). Meanwhile, a third of Thailand’s population continues to work in a relatively unproductive and disaster-prone agricultural sector.

And then there is the tourism sector, as mentioned above, which accounts for as much as a fifth of the economy. It is a cornerstone of the Thai economy that has proven far more vulnerable to galvanizing economic shocks than anyone could have imagined in late 2019 or even early 2020.

Moreover, Thailand is at cost disadvantage compared to foot-to-the-floor Vietnam. Not so long ago, Japanese car and camera manufacturers – to name two sectors – descended on Thailand to set up plants. Today, the country’s resiliently strong currency (it has weakened somewhat in 2022), the Thai baht (THB), and relatively high employment costs are stymying that shift, as Vietnam benefits from a broad manufacturing exodus from China, which has essentially locked its doors and is not letting anyone in. Japanese Mazda and US General Motors have pulled out of Thailand, to name two high-profile examples.

Don’t forget the politics

Thailand continues to face a roiling political crisis – of possible epic proportions, though only time will tell – at a time when the political elites should be completely focused on the nation’s health and economy. The Kingdom has had two coups since 2006 and its current military government, which has been in power for some six years, is frequently distracted by waves of creative protests inspired by similar youth protests first in Taiwan and then in Hong Kong.

The protests have died down somewhat in recent months, but it’s highly unlikely that they have retreated under a rock, never to return. Public trust in the government is at a nadir. An August 2021 poll revealed that more than 90% of Thais wanted an end to government corruption and a government that solved problems rather than playing politics.

The other factor that will almost certainly play into civil unrest at some point is consumer prices, which are almost certainly rising faster than the government admits.

According to one local report, “Prices for chicken, eggs, boat fees, even toll fees, are also increasing and Deputy PM Supattanapong Punmeechaow is now asking Thais to “stay positive” amidst the price hikes and claims that “it is temporary.”

Meanwhile, the price of pork – a Thai staple – has skyrocketed to the point that crocodile farms are selling the meat of their reptiles at more than half the price of pork and Thais are taking to the alternative meat source. Thailand’s pork crisis, it should be noted, is in large part due to an outbreak of African Swine Fever (ASF), a porcine disease that decimates herds of pigs.

In short, broad distrust in the government and inflation is a classic recipe for broad-based dissent and it needs to be watched as a risk factor in a slowly recovering Thailand.

And now for the good news

To be sure, there is a lot to worry about in Thailand, but the World Bank December 2021 Thailand Outlook sees multiple silver linings in a cloudy horizon. Thailand’s exports are growing in response to increased global demand and it is expected that the country will see strong growth in investment.

The World Bank forecasts that economic activity in the Kingdom will return to its pre-pandemic levels by the end of this year, due to the continued global commitment to vaccination campaigns, which in turn is expected to see a resumption of Thailand’s booming tourist sector. In terms of actual forecast numbers, the bank expects international arrivals to reach around 7 million in 2022 – mostly in the second half of the year – while increasing to around 20 million arrivals in 2023 – about half of the 2019 level. “Tourism is expected to contribute 2 percentage points to the growth rate in 2022 and 4 percent in 2023,” the bank reports.

Of course, uncertainty clouds all such forecasts. As FocusEcomomics points out, growth in Thailand is almost certainly bound to improve compared to 2021, which was anaemic at best, because consumer spending is picking up and “external sector growth remains solid.”

But, the report continues, fiscal support will likely be limited and the overriding uncertainty about the extent to which Thailand’s economic pillar, tourism, can recover in the year ahead means that robust growth is by no means a certainty. It’s likely that Thailand will continue to lag behind some of its regional competitors in terms of its recovery – notably Vietnam, which is Southeast Asia’s country to watch.

Meanwhile, the Thai government remains committed to high-profile infrastructure projects, such as new railways and an airport planned near Bangkok, all of which will serve Thailand well in the long term. The fear in Thailand itself is that Thailand’s immediate malaise – and it is legion in nature – will outlast the pandemic longer than the regular Thai is ready to put up with.