HSBC Sees Tourism Recovery Aiding Steady BoT Outlook

The bank points to the surge in tourism arrivals as an important offset to weaker government spending. This could see the BoT remain on hold, see below more details.

HSBC: "3,352,302 international tourists visited Thailand in February 2024, which represented a 93% recovery rate from pre-pandemic levels. This was a stark improvement from January's 82% recovery rate.

At 93% of pre-pandemic levels, the improvement in the recovery rate was the largest month-on-month jump (11ppt) seen since the economy re-opened in 2022. This will likely provide some lift to 1Q 2024 GDP while public spending remains bleak until the parliament works out the passage of the FY2024 budget. Of course, the Chinese tourists were the biggest driver of the increase, as the recovery rate improved to 63.4% of pre-pandemic levels from 47.5% in the previous month. The same can be said to the Japanese visitors.

But what we find to be more optimistic is the fact that tourists from elsewhere have breached 100% of pre-pandemic levels, led by ASEAN, Taiwanese, and Indian tourists who are now more than 120% of pre-pandemic levels! This puts one major assumption in question: that the speed of recovery 'diminishes' closer to 100%. In other words, there is now no pre-conceived ceiling as to how much tourism can grow.

If mainland Chinese tourists continue to recover, while non-mainland Chinese tourists are growing beyond pre-pandemic levels, the Thai GDP outlook will, indeed, turn for the better, supporting the Bank of Thailand's (BoT) view that the economic recovery is still underway. All in all, this big improvement gives the BoT leg room to keep its policy rate unchanged. Nonetheless, the February figure is just one data-point, and more is needed to see whether this big jump can be sustained.

Chinese tourists have actually been visa-free since September of last year. But hopefully, the visa-free scheme for Chinese tourists in Singapore and Malaysia incentivizes intra-ASEAN travel and lend some support amid the low season. So far, things look good with 3-month advance booking rates back to pre-pandemic levels. 4Q 2023 BOP figures will also be key to monitor to check whether spending per tourist continues to improve."