We can expect tourism in ASEAN to recover at a time when it is badly needed. Photo: Golden Bridge in Da Nang city. 

Not everything can be boxed and put on a container ship. No one can export a good view, a perfect sunset, or white sand. Yes, pictures can help, but they are no substitute for sipping an ice-cold drink by the beach and savouring the fresh breeze. That’s why, pre-pandemic, tourism in Asia was booming.

In economics, tourism is counted as an export of services – a service provided to a non-resident by a resident. And travel is not the only type of services that is exported. Others include business process outsourcing (BPO), telecommunications and computer services, transportation (passenger or freight), financial services, and research.

Unfortunately, export of services, particularly travel, fell off a cliff during the pandemic. However, with the resumption of cross-border travel in many parts of the world, we can expect tourism in ASEAN to recover at a time when it is badly needed. This recovery will probably be imperfect but can potentially provide some resilience to help ASEAN sail through global headwinds.

ASEAN, export of services, and COVID-19

With competitive salaries, scenic natural resources, and a hospitable population, export of services was a key component of ASEAN’s economy. Prior to 2020, despite only having around 3% of the world’s GDP, ASEAN’s share to the world’s total export of services stood at a sizeable 7%. The share was even larger at 8%, if we factor in the number of travellers who go to ASEAN relative to the total number of tourists in the world.

Things changed, however, when the pandemic struck. As mentioned earlier, demand tilted towards the consumption of goods from services, as households were forced to stay home during lockdowns. “ASEAN’s share of total global economic output remained largely the same but its share of export of services and the share in terms of the number of tourists dropped considerably. In fact, export of services in ASEAN contracted much more than that in the rest of the world, partly explaining why total economic output in some ASEAN economies contracted slightly more”, said HSBC.

Travel and not export of services

Why did export of services in ASEAN fall much more? To answer this, we look at different categories of services export. In HSBC’s view, the drop in ASEAN’s total export of services in 2020 and 2021 was mainly due to a large contraction in travel, which represented a large share of services exports prior to the pandemic.

If we look at the percent difference of each component relative to the pre-pandemic level, some types of services exports expanded in 2021 as the population has started to live with COVID-19. Telecommunications and other business services expanded during the pandemic, providing a pocket of resilience for economies that are big on BPO, such as the Philippines. Travel, on the other hand, fell 80- 90%. This suggested that the reduction in services export during the pandemic is driven mostly by one thing: the fall of international tourism.

From staycation to vacation

Tourism is a crucial component of ASEAN’s economy but its importance varies across each economy.. Two economies that stand out are Thailand and Vietnam, with tourism receipts as high as 10%-plus of GDP in 2019. These shares, however, drastically fell in 2020 and 2021 as the pandemic forced economies to close borders, consequently halting leisure-related tourism. Meanwhile, Malaysia and the Philippines hardly had any tourist receipts at all in 2021.

However, since the start of 2022, the region has been accelerating efforts to resume crossborder travel. And like turning on a water faucet, we can expect the flow of tourism receipts to strengthen, given three years of pent-up demand.

“The potential for growth is significant, if we consider the rate of change from a base of almost no tourists at all. To better illustrate this, we project how much additional GDP growth (in ppt) may be generated, if tourism returned to pre-pandemic levels for each ASEAN economy. Here, we look at the difference of tourism receipts (either through tourism statistics or the balance of payments) in 2Q19 and 2Q22 and see how much more could be added to GDP”, said HSBC.

We can see that Thailand and Malaysia still have a lot more room to grow, given how important tourism was to their economies before COVID-19. If tourism returns to normal, Thailand and Malaysia may grow by 5.5ppt and 3.9ppt, respectively. Potential growth elsewhere is smaller; nonetheless, any boost to potential growth would be helpful. However, it is important to note that these projections assume a perfect recovery: that tourism returns to pre-pandemic levels. There is a risk of overestimating the impact a recovery in tourism may have. For example:

The recovery to pre-pandemic travel may not be as fast as expected. Although there is a substitution effect that favours services over goods, the income effect may not be as favourable. Some incomes and savings may have deteriorated (or are deteriorating) due to the economic scarring from the pandemic and inflationary concerns, thus limit  ing some households’ ability to spend on travel.

Some crowding-out of other economic activities may occur. For instance, some of those who may have been laid off in the tourism industry during the pandemic may be working in the recreation industry in the meantime but intend to return to their previous jobs when tourists from abroad return.

Nonetheless, a major takeaway here is the potential pocket of resilience in ASEAN, particularly for Thailand, Malaysia and, perhaps, Vietnam. Yes, global headwinds will bring challenges; however, the shift of global demand from goods to services and the ongoing resumption of travel can help ASEAN power through the upcoming headwinds.

Not surprisingly, economies like Thailand are keeping a close eye on the tourism revival. The governor of the Bank of Thailand (BoT) commented that the biggest risk that can derail the Thai economy’s recovery is a shock to tourism. Given the positive momentum, we recently raised our tourist forecast to 11.7m arrivals for 2022, exceeding the government’s forecast of 10m.

Another takeaway here is the importance of mainland China in ASEAN’s post-pandemic recovery. A large portion of tourists in some ASEAN economies are from mainland China. One third of Thailand’s tourism activities, for instance, come from expenditures by these tourists. Therefore, it is a swing factor that can determine the extent of ASEAN’s tourism recovery.