Thailand, Tourism Trauma

Thailand extends a red carpet to tourists, which may seem to be a win for the economy as tourists flood in, but it also meant that Thailand’s economy was heavily reliant on tourism for development. Everything appears to be fine until a global pandemic strikes, resulting in a sharp rise in travel restrictions.

Economic Overview

Thailand has made tremendous progress in social and economic growth over the last four decades, moving from a low-income to a high-income country in less than a century. As a result of its sustained strong growth and remarkable poverty reduction, Thailand has become a commonly cited development success story.

Over the past 30 years, poverty has declined dramatically, from 65.2 percent in 1988 to 9.85 percent in 2018. (based on official national estimates). However, both household income and consumption growth have slowed in recent years across the country.

Covid-19 Impact

COVID-19 had a significant economic effect, pertaining to Thailand’s openness to trade and position as a tourism hub.

Weaker global demand has resulted in a drop in global trade, which has harmed Thailand’s exports and disrupted global supply chains, such as those involving cars, in which Thailand plays a key role.

Due to transmission control and social distancing steps, the outbreak is likely to result in significant job losses, especially in tourism.

Since March 2020, the tourism market, which accounts for nearly 15% of GDP, has been seriously impacted by a near-complete cessation of international tourist arrivals.

Although necessary for flattening the infection curve, mobility restrictions imposed in response to the outbreak have severely harmed private consumption, especially in retail and recreational services. This is reflected in the drop in durable goods sales in the first quarter of 2020, which fell by nearly 12%.

Summer travel plans could be hindered by pandemic-related lockdowns, flight cancellations, and border closures. The sharp decline in tourism, on the other hand, would have a disproportionate impact on countries that depend on international visitors, with potentially large-scale implications for their economies’ national accounts.

In Thailand, a drop in tourism as a result of COVID-19 reduced the country’s total exports by 8% of GDP and had a direct net effect on the current account balance of about 6% of GDP in 2020. This ate into the country’s overall current account surplus, which was 7% in 2019.

Nonetheless, the cumulative impact of a downturn in tourism on current account balances could be less than these predicted direct effects suggest. Offsetting indirect effects can be seen in smaller, tourism-dependent countries and even larger economies with a strong tourism industry. Smaller countries, for example, with less domestic capital, depend on more imports to sustain their tourism industries.

Economic growth is expected to pick up in 2021 (4.1%) and 2022 (3.6%), with a return to pre-COVID production levels expected in about two years. The economic recovery’s sustainability will also be determined by how well the economy responds to distressed households and businesses.