Thailand’s tourism-reliant economy has gathered pace in second quarter of 2022

Thailand’s economy likely grew at its fastest pace in a year last quarter, thanks to increased tourism as pandemic curbs eased, but the high cost of living and a slowdown in China pose threats to the outlook, a Reuters poll showed.

Growth in the tourism-dependent economy is estimated at 3.1% year-on-year in the second quarter, according to the median forecast of 16 economists polled between Aug. 8 and 11, up from 2.2% growth in the previous quarter.

However, on a quarterly basis, gross domestic product (GDP) grew a seasonally-adjusted 0.9%, slowing slightly from 1.1% in the preceding quarter, the median forecast from a smaller sample of 12 economists showed.

Forecasts ranged from 0.1% to 1.3%, highlighting uncertainties surrounding the recovery of Southeast Asia’s second-largest economy from the pandemic. The data are due to be released on Aug. 15.

“Thailand’s crucial tourism sector is a significant part of the economy and a faster-than-expected revival should lift overall growth,” said Chua Han Teng, economist at DBS.

“That said, the tourism sector’s significant reliance on Chinese tourists suggests a full recovery to pre-pandemic numbers remains quite some time away, if China does not loosen its zero-COVID policy.”

Thailand received 1.07 million foreign tourists in July, up from 767,497 the previous month.

The government has estimated foreign tourist arrivals will reach 10 million this year. Prime Minister Prayuth Chan-ocha said the economy was expected to grow 3.3% this year and 4.2% next year, helped by increased tourism.

But an ongoing Covid-19 situation in China, which still pursues a zero-Covid strategy, has stoked fears of a delay in the return of Chinese tourists. That, along with a slowdown in the world’s second-biggest economy, increases the risk of a deep global recession.

“Heightened fears of a global recession amid an uncertain environment could act as a drag on Thailand’s economy and pose downside risks to our growth forecast,” DBS’ Han Teng added.

A separate Reuters poll showed Thailand’s economy would grow 3.4% this year and then accelerate to 4.1% in 2023, before slowing to 3.5% in 2024.

But inflation remains a concern. The headline rate dipped to 7.61% in July but was still near June’s 14-year high and well above the Bank of Thailand’s (BOT) target range of 1%-3%.

“There’s no clear sign that inflation would clearly come down or significantly fall,” said Tim Leelahaphan, economist at Standard Chartered.