Thailand's already fragile economy threatened by coronavirus

Thailand's tourism sector comprises 20% of GDP © Getty Images

(Image credit: AFP via Getty Images)

published 23 February 2020

The Thai economy is in trouble, says Clara Ferreira Marques on Bloomberg. Southeast Asia’s second-biggest economy was already suffering from the “simultaneous blows” of the US-China trade war and the worst drought in decades. Now the coronavirus threatens to put the squeeze on its vital tourist economy. Local stocks have taken a battering, but “it’s hard to argue that pessimism is overdone”. The local SET stock index is down more than 4% since the start of the year.

A global slowdown and strong Thai baht saw Thailand experience the slowest growth in five years last year, says Masayuki Yuda for the Nikkei Asian Review. The economy grew by just 2.4%. That compares unfavourably with annual growth rates of 4%-7% in neighbours such as Malaysia, Indonesia and Vietnam.

Those underwhelming growth figures show that the economy was “in a poor state” even before the coronavirus outbreak, says Gareth Leather of Capital Economics. The economy now looks on course for a sharp contraction in the first quarter of this year, with economic growth for the year as a whole likely to come in at just 1%. Exports to China make up over 5% of Thai GDP and local textile, automotive and electronics operators are likely to feel the adverse effects of regional supply-chain disruption.

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Thailand welcomed almost 40 million foreign visitors last year, including 11 million Chinese arrivals, says Kitiphong Thaichareon for Reuters. Spending by foreign tourists accounts for 11% of GDP and the sector as a whole makes up roughly one-fifth of the economy. Yet the tourism ministry is predicting five million fewer arrivals this year because of the virus, which is likely to mean a 1.5% hit to GDP, says the central bank.

That reliance on tourism is forcing Thai authorities to make difficult choices, says The Economist. “All countries must balance their fear” of the coronavirus epidemic against the “damage caused by measures to contain it”. Unlike many other governments, Thailand has “neither restricted Chinese tourist” visits nor even tightened its liberal visa-on-arrival policy. The economic logic is clear, but the lack of restrictions smacks of “desperation”.

On a cyclically adjusted price/earnings ratio of 15.9 the stockmarket is valued similarly to others in southeast Asia, but it compares unfavourably in other respects. Thailand’s continual political instability has hampered economic development and investment. The 2014 coup that brought the current regime to power was the twelfth since 1932. The country also faces an “ageing population, poor productivity, flatlining consumption and hefty household debt,” says Ferreira Marques. There is little reason to buy in.

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Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.

Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.

He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.

Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.