ECONOMICS COMMENTARY — Mar 28, 2023
Thailand’s tourism sector drives economic recovery
By Rajiv Biswas
Thailand has shown a gradual economic recovery from the COVID-19 pandemic during 2022, helped by rising international tourism arrivals. Real GDP growth rose from 1.5% in 2021 to 2.6% in 2022, with growth momentum expected to improve further in 2023.
The latest S&P Global Thailand Manufacturing PMI survey results for February 2023 continued to signal expansionary conditions for manufacturing output and new orders. Due to the importance of international tourism for the Thai economy, the recovery of the tourism inflows is expected to be a key factor that will help to support improving economic growth momentum during 2023.
Thailand: Economic recovery from pandemic
Thailand recorded real GDP growth of 2.6% in 2022, representing a relatively modest pace of economic recovery from the recessionary conditions caused by the COVID-19 pandemic. Thailand's growth rate in 2022 was quite moderate in comparison with other large ASEAN economies such as Malaysia, Vietnam and Philippines, which posted very high growth rates as they rebounded from the pandemic.
A key driver for improving economic growth in 2022 was the recovery of private consumption, which grew by 6.3% compared with just 0.6% y/y growth in 2021. Private investment growth also improved from a pace of 3% in 2021 to 5.1% in 2022. However public investment contracted by 4.9% in 2022, while government consumption was flat.
Strong growth in private consumption and investment as well as rising energy import prices helped to boost import growth, which rose by 15.3% in 2022, while exports rose by just 5.5%, measured in USD terms. Consequently, the trade balance narrowed from USD 32.4 billion in 2021 to USD 10.8 billion in 2022.
Due to the important contribution of international tourism to Thailand's GDP, a key factor that constrained the rate of recovery of the Thai economy in 2022 was the slow pace of reopening of international tourism, although this gathered momentum in the second half of 2022.
Thailand's manufacturing sector has also shown some improvement in momentum, with the S&P Global Thailand Manufacturing PMI for February 2023 having shown strong expansion. The latest PMI data signalled further growth in output and new orders. The PMI rose for the third month running to 54.8 in February, from 54.5 in January indicating improving business conditions for the 14th consecutive month.
New orders for Thai manufactured goods expanded at the quickest pace in five months. The easing of COVID-19 disruptions supported the latest expansion. Foreign demand for Thai manufactured goods continued to shrink, however, amid challenging external conditions.
Meanwhile supply constraints persisted within the Thai manufacturing sector. Vendor performance deteriorated for the tenth straight month on the back of higher demand and transportation delays. Concurrently, input cost inflation rose in February, reflecting higher raw material costs and heightened shipping cost pressures.
Thailand's headline CPI inflation rate has eased to 5.0% y/y in January 2023, compared with 7.9% y/y in August 2022. The Monetary Policy Committee (MPC) of the Bank of Thailand decided to raise the policy rate by 0.25% from 1.25% to 1.50% at their Monetary Policy meeting on 25 January 2023. This follows three 25bp rate hikes by the MPC in 2022, In 2022, the Monetary Policy Committee (MPC) decided to increase the policy rate three times by 25 basis points each in August, September and November. As a result, the policy rate stood at 1.25 percent compared to 0.50 percent at the end of 2021The MPC assessed that headline inflation will decline, while medium-term inflation expectations remain anchored within the target range.
Recovery of international tourism sector
International tourism was a key part of Thailand's GDP prior to the COVID-19 pandemic, contributing an estimated 11.5% of GDP in 2019. However, foreign tourism visits collapsed after April 2020 as many international borders worldwide were closed, including Thailand's own restrictions on foreign visitors.
As COVID-19 border restrictions were gradually relaxed in Thailand and also in many of Thailand's largest tourism source countries during 2022, international tourism showed a significant improvement during the second half of the year. The number of international tourist arrivals reached 11.15 million in 2022, compared with just 430,000 in 2021. However, the total number of visits was still far below the 2019 peak of 39.8 million, indicating considerable scope for further rapid growth in the tourism sector during 2023.
Thailand economic outlook
Despite the upturn in private consumption and international tourism arrivals in 2022, the overall pace of economic expansion was relatively moderate, at just 2.6%. Easing of pandemic-related travel restrictions during 2022 has also allowed a gradual reopening of domestic and international tourism travel, which gathered momentum in the second half of 2022.
With more normal conditions expected for international tourism travel in 2023, this should provide a significant boost to the economy. Due to the importance of tourism inflows from mainland China prior to the pandemic, the reopening of mainland China's international borders will be an important factor contributing to the further recovery of Thailand's tourism market.
Helped by the continued recovery of the international tourism sector, some upturn in GDP growth to a pace of around 3.5% is expected in 2023.
Over the next decade Thailand's economy is forecast to continue to grow at a steady pace, with total GDP increasing from USD 500 billion in 2022 to USD 860 billion in 2032. A key driver will be rapid growth in private consumption spending, buoyed by rapidly rising urban household incomes.
The international tourism sector will continue to be a dynamic part of Thailand economy, buoyed by rapidly rising tourism arrivals the populous Asian emerging markets, notably mainland China, India and Indonesia.
By 2036, Thailand is forecast to become one of the Asia-Pacific region's one trillion-dollar economies, joining mainland China, Japan, India, South Korea, Australia, Taiwan, Philippines and Indonesia in this grouping of the largest economies in APAC. The substantial expansion in the size of Thailand's economy is also expected to drive rapidly rising per capita GDP, from USD 6,900 in 2022 to USD 11,900 by 2032. This will help to underpin the growth of Thailand's domestic consumer market, supporting the expansion of the manufacturing and service sector industries.
However, rising per capita GDP levels will also put pressures on Thailand's competitiveness in certain segments of its manufacturing export industry. Therefore, an important policy priority for nation will be to continue to transform manufacturing export industries towards higher value-added processing in advanced manufacturing industries.
One of the key economic and social challenges facing Thailand is its rapidly ageing population, which will result in a rising burden of health care and social welfare costs over the next two decades. This will be a drag on Thailand's long-term potential growth rate, making investment in technology and innovation increasingly important to mitigate the economic impact of demographic ageing.
Rajiv Biswas, Asia Pacific Chief Economist, S&P Global Market Intelligence
Rajiv.biswas@spglobal.com
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.