Thailand Heading for Back-to-Back Current Account Deficits
As the outlook for tourist arrivals deteriorates amid an increase in Covid cases globally and rising energy import bills, Thailand is on track for a rare back-to-back current-account deficit.
According to the Bank of Ayudhya Plc, who previously estimated a $5.8 billion surplus in the current account — the most comprehensive measure of trade and investment, Thailand may have a shortfall of $4.6 billion this year.
Southeast Asia’s second-largest economy is also expected to post a deficit for a second straight year in 2015, the first time since 1997, according to Nomura Holdings, DBS Bank, and Maybank Investment Banking Group.
Thailand is now likely to run a current-account deficit this year, according to Australia & New Zealand Banking Group economist Krystal Tan. Thailand’s high reliance on imported energy has significant negative consequences for its current account as a result of the Russia-Ukraine conflict. A fall in visiting Russians and a possible increase in freight costs are also potential second-round effects.
In addition to revising its Thai current account surplus of $2.4 billion, ANZ will also reduce its shortfall in 2021, Ms. Tan said. As a result of the pandemic, foreign tourism receipts nearly vanished from the country last year, official data show.
Thailand Losing Tourists
Millions of foreign tourists used to generate tens of billions of dollars in revenue each year for Thailand before the pandemic struck. Due to flight disruptions and payment difficulties for Russians, the country’s currency is once again vulnerable to a sell-off after a gradual rebound in tourism following the lifting of all border controls.
According to Pipat Luengnaruemitchai, chief economist at Bangkok-based Kiatnakin Phatra Securities, the baht has lost more than 3% since Russia invaded Ukraine, and the outlook for the currency remains weak, given the widening current-account gap and interest rate differential between Thailand and the United States.
Mr. Somprawin Manprasert, the chief economist at Bank of Ayudhya, said Thailand’s status as a net oil importer has generated a trade deficit and inflation, muddled the outlook for economic recovery. As a result of the war and low tourist arrivals, Mitsubishi Financial Group has reduced its Thai growth forecast to 2.8% for this year, he said.
Thailand faces a double whammy with rising inflation and a slowing economy, Somprawin said. The tourism industry is going to be affected, not just because Russians will not travel, but also because the sour sentiment and falling income will discourage others from visiting. The Thai economic outlook is worrying.”
The Absence of Chinese Tourists
The Thai economy will not recover to its pre-pandemic levels without the Chinese, who accounted for almost 30% of the travelers. Although most of the barriers to visitors have been lifted, COVID tests on arrival and the paperwork to obtain a pre-arrival visa are seen as discouraging holidaymakers even as more tourism-dependent countries reopen.
Foreign investors are also expected to pull out of Thailand’s bonds. This will weigh on the current account at the same time as the trade deficit balloons in response to soaring energy prices and normalized exports. Bloomberg calculates that foreign funds have withdrawn a net $1.9 billion from the nation’s bonds in the past two months after pumping in $4.6 billion.
The baht volatility is more likely to favor the downside, said Pipat from Kiatnakin Phatra. He explained that the outlook for the currency is based on tourist arrivals. As soon as signs of a firm tourism recovery emerge, sentiment toward the baht will also return.”