Thailand tourism is no longer a harbinger of growth
THE EXPLOSIVE growth of tourism industry has been a boon for the Thai economy. Representing about one-fifth of the economy, exports of services have been growing at the compound annual rate of 10.6 per cent since 2012, three times the GDP growth rate in the same period. As a result, tourism has contributed more than 2 per cent to annual GDP growth in four out of the past six years since 2012.
Chinese tourists have been the main driver growth, growing 31.2 per cent per year (CAGR) since 2012, almost five times as fast as non-Chinese tourists during the same period. Thailand has seen its share of Chinese outbound tourists rising steadily from under per cent in 2013 to 7 per cent in 2018, and has become the number one destination (excluding HK) among Chinese travellers since 2015.
Recent concerns about the Thai tourism industry involved the Phuket boat accident which resulted in a deep plunge in Chinese tourist arrivals in August and September. However, Chinese tourist has a proven history of making a strong comeback after a shock. In the past several years, there were several shocks including the coup in 2014, Erawan shrine bombing in 2015, and zero-dollar tours crackdown in 2016. Chinese tourists took on average four months to recover from these shocks. The Phuket boat incident should not be an exception, and we expect growth in Chinese tourists to recover and return to positive territory by the end of this year.
However, in the next 12 month or so, the growth of Chinese tourists may not be as strong as before due to two reasons. First, weakening China GDP growth and rapid depreciation of the yuan will likely weigh on the number of outbound tourists from China. Second, the lifting of a ban on Korea-bound group tours could also adversely impact Thailand’s share of Chinese tourists.
We expect Chinese outbound tourist growth to slow significantly in 2019 as the yuan weakens. Historically, the yuan has strong correlation with the growth of Chinese outbound tourists. For example, after the PBoC announced the yuan devaluation in August 2015 which triggered a 12 per cent depreciation of the yuan in the following year, the growth of outbound tourists dropped rapidly to 2.7 per cent in 2016 from 15.7 per cent a year earlier. In 2018, the yuan has weakened by around 10 per cent against the US dollar since April. Therefore, we expect the growth of Chinese outbound to see a marked slowdown in 2019.
The recovery of Korea-bound group tours could also threaten Thailand’s share of Chinese tourists. In March 2017, Beijing ordered travel companies to stop selling popular group trips to South Korea in response to Seoul’s decision to install the US-made anti-missile system known as Thaad. The ban saw Chinese visits to South Korea drop 48 per cent last year to 4.2 million. Korea’s share of Chinese tourists dropped from 6 per cent to below 2.5 per cent in the first quarter of 2018. Thailand, has been the main beneficiaries of the ban, gaining 1 per cent in Chinese tourists share from 6 to 7 per cent during the same period.
The ban was lifted in April this year, and Korea-bound Chinese tourists have made a strong comeback, gaining 50 per cent year on year in the second quarter. A thawing of Chinese-Korean relation and a strong recovery of Chinese visits to Korea will inevitably threaten Thailand’s share of Chinese tourist going forward. Korea is a strong contender for Chinese travellers as the country boasts short travel time, visa-free entry for Chinese citizens, rich cultural and shopping experience and safety. In fact, back in 2014 before Thailand became China’s favourite destination, South Korea was the number one destination among Chinese travellers.
In summary, the impact of the Phuket boat accident on Chinese tourists may prove short-lived but structural factors such as the sluggish economic growth in China and rapid weakening of the yuan may weigh on the growth of Chinese tourists in 2019. In addition, Thailand’s share of Chinese tourists could be threatened by a recovery of Korea-bound tourists. We, therefore, forecast below-consensus tourist arrival growth in 2019 of 4.4 per cent, a significant slowdown from 8.8 per cent and 7.3 per cent growth in 2017-2018.
Contributed by KOMSORN PRAKOBPHOL, Head of Strategy at Tisco Economic Strategy Unit. He can be reached via www.tiscowealth.com or [email protected].
