Economics Macro Keys – ASEAN: Tracking Tourism: What Comes Next?

International travel services are an important export for Thailand, Malaysia and Singapore. Lower tourism expenditure has been an important driver of our projections of weaker 2020 growth.

28 May 2020

Thailand is one of the most international tourism exposed economies

This scatter plot chart shows the tourism exposure of local economies of several locales as a percentage of GDP.

What is ASEAN doing about the tourism slump?

Thailand, Singapore and Malaysia are some of the most exposed economies to the slump in international tourism. Travel services exports in 2019 amounted to 11% of GDP in Thailand, 6% in Malaysia and Singapore. Data for April shows Vietnam visitor arrivals down 90% and similar declines are likely elsewhere. We spoke to Mr Le Quang Lan, Assistant Director and Head of the ICT & Tourism Division at the ASEAN Secretariat (ASEAN's co-ordinating body) to get a sense of what comes next.

Back in the air? Immigration remains a challenge

Mr Lan highlighted that supporting a recovery in the tourism sector is a priority for regional governments. We note that hotels are tentatively opening for business (with a domestic  focus)  in  all  ASEAN-6  economies  ex-Singapore.  Domestic  flights  have  restarted in every ASEAN-6 economy except Philippines (restarts early June). Where grounded, international passenger flights will be allowed from June in Philippines, Malaysia, Singapore and July in Thailand. Immigration restrictions remain a challenge.

International tourism restart depends on comfort with safety standards

Mr Lan indicated that COVID-19 concerns would lead to international business travel being prioritised over tourism travel. Business travel is more easily tracked and without business travel some FDI flows could be at risk due to the need for on-the-ground due diligence. International tourism likely requires a higher level of confidence in health and safety on the part of tourists and governments. Domestic tourism is easier to restart because of the perceived lower risk of introducing new COVID-19 cases.

Could bilateral agreements help?

Could bilateral agreements between governments be a path to restarting international travel? Singapore's Minister for Trade and Industry Chan Chun Sing has raised the possibility of travel corridors with China, Korea, New Zealand and Australia. Mr Lan suggested that bilateral agreements are not actively being discussed at the ASEAN level. For ASEAN tourism, much will depend on the level of trust in safety and hygiene the tourism industry is able to build with governments and tourists (which may take time).

Branded hotels could benefit from a higher priority for safety and hygiene

Our conversations with the management teams of hotel operators in the region suggest the key to gaining consumer trust in this new normal of travel is to reinforce higher safety and hygienic standards. Many hotel operators have set up task forces to respond  to  the  demands  of  customers,  such  as  implementing  social  distancing  measures within the premise, adopting strict food safety and hygiene protocols, and increasing frequency of cleaning. As the top concern for resuming travel is safety, we believe larger branded hotels are likely to benefit from this change in consumer behaviour given an established track record and standardized cleanliness and safety practices, as opposed to non-traditional accommodations.

Thai baht to stay on the back foot

With net travel services exports at 8% of GDP in 2019, Thailand's balance of payments is most at risk in ASEAN from the slump in tourism. However, despite the weakness in visitor arrivals, Thailand's CA balance has been strong YTD, pushing net FX reserves higher by $8bn since 20th March. Unusually elevated net jewelry/gold exports explain part of this improvement. While gold exports are difficult to forecast, we doubt the trend is sustainable and forecast a CA deficit in Q2 and Q3 on average as tourist arrivals only slowly recover. A CA surplus of less than 3% of GDP has historically been a drag on the baht. As a result we expect the THB to be kept on the back foot, especially vs more cyclically sensitive Asian currencies in 2H20 as the global economy recovers.

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