Emerging

Waiting for the return of tourists

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Eco Emerging // 2 quarter 2021  
economic-research.bnpparibas.com  
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THAILAND  
WAITING FOR THE RETURN OF TOURISTS  
After a severe recession in 2020, economic growth will rebound moderately in 2021-2022. The main growth engines  
private consumption and the tourism industry – were weakened by the abrupt shutdown of economic activity as  
of Q2 2020, and the dynamics of the recovery will continue to depend on the evolution of the health situation. As in  
020, the authorities will take advantage of the comfortable manoeuvring room built up prior to the crisis to provide  
2
economic support. In the medium to long term, political tensions, exacerbated by the economic crisis, will continue  
to strain Thailand’s long-term growth potential.  
A LACKLUSTRE RECOVERY  
FORECASTS  
After contracting by 6.1% in 2020, real GDP is expected to recover in  
2
021 and 2022, rising by 3.2% and 4%, respectively. Domestic demand  
2
019  
2020e  
2021e  
2022e  
has been drained by the economic shutdown in Q2 2020 (when GDP  
contracted by more than 12% y/y) and by strict social distancing mea-  
sures maintained throughout most of H2. Despite massive government  
support, private consumption and investment contracted at an ave-  
rage annual rate of 1% and 4.8%, respectively. The absence of foreign  
tourists, supply disruptions and the desynchronisation of Asian supply  
chains also triggered a drop-off in exports of goods and services, down  
Real GDP growth (%)  
3.7  
1.3  
-6.2  
-0.8  
-5.1  
49.4  
3.3  
3.2  
0.4  
4.0  
0.3  
Inflation (CPI, year average, %)  
Gen. Gov. balance / GDP (%)  
Gen. Gov. debt / GDP (%)  
-2.3  
41.1  
7.3  
-4.9  
55.1  
2.6  
-3.7  
55.3  
4.9  
Current account balance / GDP (%)  
External debt / GDP (%)  
31.5  
224  
9.0  
34.7  
258  
15.0  
33.7  
270  
11.0  
32.6  
287  
11.0  
1
9.4%.  
Forex reserves (USD bn)  
Looking beyond a base effect, economic growth is expected to  
rebound moderately in 2021. Growth will get some support from  
the manufacturing and export sectors, which have been recovering  
since July according to monthly statistics. Given the composition of  
Thailand’s exports, however, it will not benefit fully from the dynamic  
momentum of the electronics sector observed in the other ASEAN  
countries (electronics accounted for less than 15% of Thailand’s 2019  
exports).  
In the short term, the dynamics of the recovery will continue to hinge  
on the evolution of the health situation. A new wave of Covid 19 cases,  
with the ensuing restrictions that would entail, could hamper and even  
halt an already fragile recovery.  
Forex reserves, in months of imports  
e: ESTIMATES & FORECASTS  
TABLE 1  
SOURCE: BNP PARIBAS GROUP ECONOMIC RESEARCH  
FOREIGN TOURISTS (MILLIONS OF PERSONS PER MONTH)  
4
4
.5  
.0  
ASEAN+China  
Other  
3.5  
3
2
2
.0  
.5  
.0  
Although the pandemic has not hit Thailand very hard so far –in early  
April 2021, it reported 95 deaths and fewer than 30,000 cases, or only  
4
19 cases per million inhabitants– the government had to reintroduce  
severe restrictions between mid-December and mid-February  
including curfews and the closing of schools, bars and restaurants,  
measures that had been gradually lifted between May and August  
020). During this period, the number of daily new cases averaged  
1.5  
(
1
0
0
.0  
.5  
.0  
2
more than 300, after holding below 5 between May and November.  
Since mid-February, the number of new cases has levelled off at  
slightly under 100.  
2
015  
2016  
2017  
2018  
2019  
2020  
2021  
CHART 1  
SOURCE: MINISTRY OF TOURISM  
As a result of the restrictions, the rebound in domestic demand came to  
a halt in Q1 2021. After improving continuously since last July, consumer  
confidence indexes and household consumption declined in January  
and February. Weakened by the 2020 decline in household revenues  
and the under-utilisation of production capacity, private consumption  
and investment are both expected to remain sluggish at least through  
H1 2021. Production capacity utilisation rates have improved since  
June 2020, rising to 64% in February 2021 from 51% in May 2020, but  
they are still well below the pre-crisis 2019 level of 68%.  
beginning of December, foreign visitors from 56 countries have been  
authorised to enter Thailand (prior to that, the country’s borders were  
closed), albeit under very strict conditions: visitors must stay at least  
one month, including a 14-day quarantine period. As of 1 April, the  
quarantine period was reduced to 10 days, except for countries where  
the majority of cases are Covid-19 variants.  
Above all, the government announced that it plans to open the  
country’s main tourist destinations more widely as of 1 July, three  
months earlier than the rest of the country. To accomplish this, the  
inhabitants of these areas (notably the Phuket Islands and Ko Samui)  
will be given priority for vaccinations, and the quarantine period for  
Thetourismsector, whichrepresentsinthebroadsenseofthetermmore  
than 20% of GDP, will continue to be anaemic this year. The government  
announced several measures to spark a recovery in tourism. Since the  
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vaccinated tourists will be reduced to one week.  
FDI INFLOW (% OF GDP)  
According to central bank estimates, these measures could allow  
Thailand to welcome a total of three million tourists in 2021. Over  
the past ten years, the number of tourists has increased continuously  
to nearly 40 million in 2019. Although very low, the central bank’s  
estimates still seem to be optimistic. Vaccination campaigns have  
encountered numerous delays, not only in Thailand but also in the  
other Asian countries (in 2019, tourists from other ASEAN countries and  
China accounted for more than 55% of the total), and the government is  
having trouble procuring the necessary number of doses. Consequently,  
it seems highly unlikely that the number of tourists will increase rapidly,  
or that tourism revenues will recover significantly before Q1 2022.  
18  
16  
14  
12  
10  
8
6
4
2
0
ECONOMIC POLICY IS STILL ACCOMMODATING  
As in 2020, the authorities will continue to provide economic support.  
On the whole, all of these measures, including state-backed guarantees,  
accounted for nearly 10% of GDP in 2020. The Thai government is  
taking full advantage of the manoeuvring room at its disposal: the  
fiscal deficit was limited through 2019 (at an average of nearly 3% of  
GDP between 2015 and 2019), fiscal savings were substantial, and the  
public debt was mild (41% of GDP in 2019), with a favourable profile.  
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015  
2016  
2017  
2018  
2019  
2020  
CHART 2  
SOURCE: CENTRAL BANK  
The government announced new support measures in early February Demonstrations flared up again in early February. The political climate  
equivalent to 1.3% of GDP (mainly in the form of tax exemptions and is still tense and could deteriorate further once the health crisis has  
transfers to the most vulnerable households), and further measures stabilised. The protesters’ biggest demand is for the government to  
could be taken over the course of the year.  
The public deficit is expected to level off at about 5% of GDP in 2021,  
and the public debt will swell for the second consecutive year (to about  
modify the constitution to reduce the army’s influence on domestic  
politics and the various public institutions. This demand is unlikely to  
be met. The military junta came to power after a coup in 2014, drafted  
a constitution in its favour in 2016 and then ratified it in 2017. The  
country’s political and economic life is organised around a “strategic  
plan” (written by the military junta with its own interests in mind),  
and enshrined in the constitution. The 2019 elections strengthened the  
military junta’s control over the country.  
Yet the resurgence of political tensions and the multiplication of  
popular demands in the months and years ahead do not necessarily  
signal that a radical regime change is in the works. Given the country’s  
political and social functioning as well as its recent political history,  
these tensions are more likely to persist without ever resolving the  
underlying social and political crisis.  
Political risk is Thailand’s main structural weakness and remains the  
biggest threat to economic growth. In the short to medium term, the  
mistrust of domestic and foreign investors will hinder the recovery,  
which in turn will strain the rebound in household revenues and  
the prospects for a healthier labour market. It will also handicap  
the country’s positioning within Asian supply chains. Thailand’s  
chronic political instability also hampers the implementation of the  
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5% of GDP, up from 49% in 2020), without significantly increasing the  
vulnerability of public finances, at least not in the short term.  
Similarly, monetary policy will remain accommodating. After lowering  
its key rate by 75 basis points to 0.5% in 2020, the central bank has  
maintained the monetary status quo ever since. Further rates cuts are  
unlikely in 2021, but new measures could be announced to make it  
easier for SMEs and households to access lending.  
ONGOING POLITICAL TENSIONS  
The ongoing social and political crisis is hampering the country’s  
medium and long-term growth prospects and undermining its  
attractiveness, straining tourism revenues and discouraging domestic  
and foreign investment.  
Social tensions rose significantly again in 2020. The poor track record  
on executing the reforms promised during the 2019 elections combined  
with the economic crisis have exacerbated feelings of mistrust towards  
the authorities.  
Pro-democracy demonstrations have been held since last July. Initially structural reforms needed to adapt to an ageing population, the lack of  
led by students, these protests have rapidly spread to include a greater infrastructure, and the growing risk that the country will remain mired  
share of the population. The protesters’ demands are extremely in a middle income trap.  
diverse, ranging from the economic situation to the military junta’s  
repressive reforms. The demonstrations had to be halted in December  
Completed on 9 April 2021  
and January after social distancing measures were reinstated and  
Bangkok was put under a strict lockdown (the city was not only the  
Hélène Drouot  
helene.drouot@bnpparibas.com  
main site of demonstrations, but the surrounding province also had the  
highest virus infection rate).  
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