Slowdown weighs on current account
Thailand’s waning appeal in terms of attracting foreign direct investment (FDI), an uneven tourism recovery and the currency outlook are pressuring the country’s current account surplus, which is still below the prepandemic level, says BMI, a Fitch Solutions company.
Thailand, once a magnet for foreign capital, now has to contend with escalating regional competition.
India and Vietnam have emerged as the major recipients of a shift in investment currents, BMI said in its research.
In stark contrast, Thailand is trailing, unable to keep pace with its peers because of several factors such as demographic challenges and an unstable political landscape.
The country’s ageing population does not bode well for its labour market dynamics, while the political climate has been marred by instability, deterring potential investors seeking a predictable and stable environment for their capital, said the London-based research firm.
The impact of these impediments is evident in the data. FDI inflows as a share of GDP declined from a peak of 6.9% in 2013 to just 2.8% last year, BMI said.
Foreign tourist arrivals and the revenue they generate have diverged from the levels of recent years, with fewer Chinese visitors, who tend to spend lavishly while travelling, as the economic downturn in China may have reduced their spending power overseas, noted the research house.
This trend poses a significant challenge for Thailand, as spending by Chinese tourists once made up a large part of the country’s tourism income.
“We believe tourism revenue may fall short of expectations, despite a potential increase in foreign arrival numbers,” BMI noted.
“We do not think tourism revenue growth will return to trend anytime soon.”
The research house said the US economy is on track to exceed expectations, while the outlook for Southeast Asia is projected to improve this year, benefiting Thai exports as the US and Southeast Asia combined account for about 40% of Thai shipments.
However, an uptick in export performance would not alleviate the lacklustre tourism recovery, BMI said.
The firm estimates Thailand will run a wider current account surplus of 2.9% of GDP in 2024, compared with its previous forecast of 2.6%.
“This will be just shy of the preCovid size. From 2015 to 2019, it recorded an average of 8% of GDP,” said BMI, adding a major concern is the country’s debt, which has soared to unprecedented levels.
“Prime Minister Srettha Thavisin has emphasised attracting foreign investors to the country. If he were to succeed, FDI inflows could pick up in coming years, lending some support to the currency. A recovery in tourism receipts would also widen the current account surplus,” noted the research house.