Tourism to ease economic pain while waiting for new government

Economist says consumption and investment may be affected by longer-than-expected government formation, but tourism will ease the impact

Thailand is not usually immune to the political uncertainty that comes with elections, although millions of foreign tourists this year are expected to help shore up Southeast Asia’s second-largest economy.

The influx of visitors — totaling 6.5 million in the first quarter of 2023 compared with 498,000 a year ago — is helping to fuel more business and consumer activity in Thailand. Tourism is seen as an anchor amid the political upheaval, even as the export growth-engine sputters, on track to meet the government’s goal of tripling foreign visitors this year from 10 million in 2022.

„Tourism will be a key pillar of our growth this year,” said Tithima Suchard, an economist at Bangkok-based Siam Commercial Bank (SCB). „In our worst-case scenario, government spending, consumption and investment may be affected by longer-term government formation than expected. But tourism remains immune to political influence.

Tourism, the bedrock of Thailand’s economy before the Covid-19 pandemic, is regaining its key role as investors wait and watch for days after Sunday’s national referendum. Although pro-democracy parties won the most seats in the election to Thailand’s 500-member House of Representatives, the support of 250 military-appointed senators will play a key role in who becomes prime minister.

If the Senate opposes Move Forward Party leader Pita Limjaronrad’s bid for prime minister, forming a government could be delayed by months, pushing back the budget for the fiscal year starting in October and affecting state spending. Secretary-General of Thailand’s Statistics Agency Tanucha Pichaiyanan said on Monday that the budget should not be delayed by three months from 2024 after reporting the fastest first-quarter economic growth.

Gross domestic product will grow 3.6% this year and 2.6% in 2022, according to the median estimate of a Bloomberg survey. This would make Thailand the only Southeast Asian economy to experience the fastest expansion every year since the pandemic-induced downturn in 2020.

However, any increase in political uncertainty could hamper visitor arrivals, which are close to returning to the 40 million mark in 2019, after China reopened late last year. Before the coronavirus pandemic, almost a third of Thailand’s foreign visitors came from the mainland.

„If political tensions spill over into the streets, growth will be adversely affected,” said Crystal Tan, an economist at the Australia and New Zealand Banking Group. „Tourists are particularly sensitive to political instability, with visitation growth declining during such periods over the past two decades.”