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Thailand’s economic recovery from the pandemic has gained traction over the course of 2022 and should extend into 2023, in our view. Foreign tourism revival and domestic economic opening are two key growth drivers. We think the international tourism activity upswing has further room to run. It will likely be supported by growing travel demand helped by the relaxation of cross-border restrictions and a return to normalcy. Arrivals into Thailand still have some way to go before approaching pre-pandemic crisis levels, which depend on China’s border reopening plans.

Yet, a global slowdown and rising recession risks have raised questions on the sustainability of Thailand’s tourism rebound, with a clearer downside impact on goods exports. Thai policymakers think that the tourism recovery would be relatively insusceptible to global recession. In this note, we analyse the sensitivity and vulnerability of Thailand’s foreign tourism arrivals to the global economic and business cycle.

Thai tourism is broadly resilient to global business cycle swings

Our statistical analysis shows that Thailand’s foreign tourism arrivals exhibit some degree of resiliency and are less sensitive to fluctuations in global economic activity. This largely holds except during sharp synchronized global economic downturns like the 2008/09 Global Financial Crisis (GFC) and the COVID-19 health crisis that shut international borders and travel. The big drop in Thai tourist arrivals in 2013/14 was driven by domestic political event.

We perform our analysis by looking at the Kingdom’s key sources of international arrivals and broad economic activity metrics for the period prior to the pandemic. We assess the R-squared and explanatory power of the economic activity variable of the source economy by regressing with the year-on-year difference in tourist numbers, and looking at their bi-variate correlations. We avoid the pandemic period. Its unprecedented impact on cross-border travel makes it difficult to decipher the impact of economic activity on foreign tourism activity. We look at the period from 2007 to 2019. The key economies in our analysis include ASEAN, Europe, US, and China.

• ASEAN

Thailand’s tourist arrivals from ASEAN are diverse across the 10-member bloc. Quarterly real GDP growth % YoY weighted by the share of yearly tourism arrivals from each economy would, therefore, be a broad and relevant economic activity metric. Regressing it with quarterly tourism arrivals from ASEAN, we find that the R-squared is very low at just 0.032, while the correlation is 0.18 from 2007 to 2019. Except for the similar co-movement during the GFC, foreign arrivals from ASEAN broadly decoupled from economic activity fluctuations during other periods. This points to some degree of resilience from ASEAN arrivals to the region’s economic cycle. Moreover, tourism-weighted ASEAN real GDP (incorporating DBS forecasts and IMF’s projections for economies beyond our coverage) would still expand at a decent 4.3% in 2023 vs 5.5% in 2022.

• Europe

We look at Europe as a bloc, with monthly Euro area economic sentiment index a good proxy for the region’s economic activity. Like ASEAN, we find that the R-squared from a regression with Europe tourism arrivals is negligible at just 0.014, with a correlation of 0.12. Even though the results point to some resiliency, we see some downside risks to European tourism numbers from Europe’s economic downturn arising from energy insecurity and the ongoing Russia-Ukraine war. Other than the GFC, the pace of increase in European foreign arrivals into Thailand slowed around 2011 to 2013, which was in tandem with Europe’s economic slowdown driven by the region’s sovereign debt crisis. One positive is that European visitor arrivals were still rising YoY, just at a weaker pace, even though the Euro area’s real GDP contracted for two consecutive full years in 2012 and 2013.

• US

For the US, we evaluate its economic activity via the average of monthly manufacturing and services purchasing managers indices (PMI). A regression of the US average PMI with US tourism arrivals shows a R-squared of 0.156. It is still low but higher than that of Europe and ASEAN. The correlation comes in at ~0.4. These higher figures were largely driven by the synchronization during the GFC when US households were significantly impacted negatively. Excluding the GFC, the R-squared and correlation fall drastically to just 0.035 and -0.19.

• China

Lastly, we consider the average of China’s official manufacturing and non-manufacturing PMI, available monthly, to gauge its economic performance. Regressing China’s average PMI with the foreign tourist arrivals results in a low R-squared of 0.032 and a correlation of -0.18. This suggests the movements in Chinese economic activity have an insignificant impact on Chinese tourists heading to Thailand.

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