Thai Conflict Diverts Tourists To Indonesia
The army’s decision to take over Thailand’s government in a coup d’etat is another blow to a tourism industry that is already bleeding as foreign visitors are put off by long-running political instability. The country had already seen the number of visitors shrink by almost 400,000 in the first four months of the year, and the decline was already expected to accelerate since the prime minister was deposed and the army imposed martial law.
The number of visitors fell nearly 5% on-year between January-April, according to data from Thailand’s Department of Tourism. With the crisis intensifying this month, the number of visitors is expected to decline 10%-12% in May from the year-earlier period, according to the department’s director general, Arnupap Gaesornsuwan.
That would be a heavy blow to the economy, which is already reeling from weak domestic demand and government spending. With Bangkok ranked last year as the top tourist destination in the world, tourism accounts for around 9% of Thailand’s gross domestic product — some US$35 billion last year – the highest ratio in Asia after Hong Kong.
“It’s definitely a big hit to growth,” Credit Suisse economist Santitarn Sathirathai said.
The crisis is testing whether the country still deserves its nickname of “Teflon Thailand.” Bangkok has managed to shrug off recurrent crises over the past decade, but this one – perhaps because of its length (six months and counting) – appears to be hitting harder.
Data earlier this week showed Thailand’s economy lurched backward in the first quarter of the year, shrinking 2.1% from the preceding three months. Policy makers have cut their 2014 growth forecasts repeatedly and will likely have to cut further if the unrest continues.
Even export growth was negative in the first quarter – largely because of service exports, which is where tourism is recorded. And tourism has a significant knock-on effect on the economy because of the range of ancillary businesses it impacts.
“When you have political instability that’s affecting your tourism numbers, that’s going to reduce your national income and that will spill over to weakening consumption,” CLSA economist Tony Nafte said. “The impact from tourism is one of the key contributors to the economy’s overall decline.”
Thai tourism has bounced back robustly from past crises, but the growing importance of visitors from China – who now make up nearly one-quarter of all guests – means past patterns may not hold. The number of Chinese visitors fell nearly 19% in January-April from the year before, Thai government data show.
“Tourism volume is more sensitive to shocks now than it was in previous years,” Mr. Sathirathai said. “It’s not such a Teflon economy anymore.”
Chinese tourists are more likely than others to cancel their trips in the face of political turmoil, Mr. Sathirathai said. That could be because they generally take large group tours whose operators may worry about insurance coverage, or because they’re relative “rookie” travelers unaccustomed to dealing with social and political upheaval.
“Maybe they don’t know too much about the country, they can’t communicate so well, they haven’t traveled much before,” he said. “When things happen, they’re not like experienced travelers who think,’This is normal, I can get by.’ ”
Not everyone agrees Thailand’s tourism industry is set to suffer. OCBC economist Barnabas Gan noted that political unrest won’t change Thailand’s natural beauty, its advanced tourism infrastructure or its proximity to large pools of potential visitors in China and Japan.
“I think martial law may hinder confidence levels in the initial stage, but I don’t see a very big hit to Thailand’s tourism industry at this juncture,” he said.
Thailand’s loss could prove to be a gain for its neighbors in Southeast Asia. Malaysia especially has benefited during past episodes of Thai instability, as has Indonesia to a lesser extent, according to a Credit Suisse analysis. Tourism to Singapore has tended to fall in line with volatility in Thailand.
The most recent data available show the number of visitors to Malaysia rose 18.2% in January from a year earlier. In Indonesia, the number of visitors was up 10% on-year in the first quarter of the year.
The number of visitors to Singapore was steady on-year in the final quarter of 2013 — the most recent figures available — while tourism revenue declined 5%.
CLSA’s Mr. Nafte said much Southeast Asian tourism tends to be complementary rather than competitive: A visitor from overseas might combine a trip to Thailand with a visit to one of its neighbors, for example.
“If I were the head of tourism in Vietnam or Malaysia,” he said, “I would prefer if there were no political problems in any country in the region.”