Issue #79 - Dark Economic Clouds Gather Over South East Asia's Travel Recovery
The inflationary impacts of Covid, war and sanctions could soften the nascent revival.
Welcome to issue 79 of Asia Travel Re:Set…
Covid. War. Sanctions. Oil. Inflation. Supply Chains. Climate. Interest Rates.
“The world is shaken by compounding crises. The fallout of the war in Ukraine is adding to the ongoing Covid-19 pandemic, while climate change and increased fragility and conflict pose persistent harm to people around the globe,” said a joint statement by the World Bank and the IMF this week.
Governments in Asia are bracing for stiff headwinds that could further destabilise fragile economies. They are rummaging in their policy toolkits to respond.
This week, South Korea raised interest rates to tackle inflation. So did New Zealand, where stagflation is a looming threat. Singapore supported its currency to counter inflationary pressures. China, meanwhile, reduced the reserve ratio for banks to ease liquidity and encourage more lending to small businesses.
In South East Asia, a low ceiling currently exists for a travel recovery given the absence of Chinese visitors, which accounted for almost a quarter arrivals in 2019. The 2-year regional shutdown created structural dislocations, and highlighted existing travel sector issues.
But the lingering effects of the pandemic are now overlaid by the far-reaching factors of war in Europe and a new supply chain crisis in China.
A triple whammy of across-the-board inflation, tighter monetary policy and a higher cost of borrowing will impact countries, companies and consumers.
The potential to dampen customer confidence and spending is real. This would drag down demand for, and constrain the supply of, travel.
As we are seeing, flight tickets are not immune to price inflation. Quite the contrary.
Right now, Central Banks are mobilising to support their currencies amid fears that a destructive sell-off could trigger a regional financial crisis.
This week, Japan’s Yen fell to a 20-year low.
Everyone is monitoring the deepening economic woes of Sri Lanka, which is defaulting on its debt. It is unlikely to be the only country facing this situation.
Finance ministers responsible for sizeable debt will be watching especially closely. The ASEAN nations with the highest levels of government debt are Laos, Malaysia, Thailand, Myanmar and Philippines.
So, too, will those managing high levels of food, oil and commodity imports.
And everyone is waiting to see when the US Fed makes its next rate hike.
The effects will be cumulative. Q2 and Q3 are going to be turbulent.
Thanks for being onboard.
The Sunday Itinerary
- “IN THE NEWS”
- Dark Economic Clouds Gather Over South East Asia’s Travel Revival
Inflationary impacts of war, sanctions, volatile oil prices and supply chain problems in China could soften a fragile travel recovery.
- South East Asia Travel & Tourism Braces for Long-Term Impacts of the Russia-Ukraine War
How will tourism boards and travel players respond to rising uncertainty?
“IN THE NEWS”
I’ll be joining Becca Rowland, John Grant and Dr Zheng Lei on the OAG webinar on 27 April to discuss the latest travel outlook worldwide. More information HERE.
Dark Economic Clouds Gather Over South East Asia’s Travel Revival
Inflationary impacts of war, sanctions, volatile oil prices and supply chain problems in China could soften a fragile travel recovery.
“We assume that Western sanctions on Russia will remain in place until at least 2023 and could be ramped up over the coming months. This would keep commodity prices elevated. Export restrictions and supply constraints would keep prices particularly elevated for the key commodities that Russia exports, such as energy, wheat and certain metals.”
“Some countries in the region may nevertheless be more resilient than others in the face of these shocks because of their attributes and prior prudence. Commodity exporters, like Indonesia and Malaysia, may absorb international price increases with less difficulty than commodity importers, like Thailand.”
World Bank, Spring 2022 East Asia & The Pacific Update
ASEAN Economic Growth in 2022
So let’s start with the macroeconomic outlook, which is highly volatile. Just as during COVID-19, forecasting outcomes is tricky. Funding organisations and research agencies committing data to paper are building in various scenarios. The World Bank, for instance, projects full-year 2022 GDP growth ‘baseline’ and ‘lower case’ outcomes.
Source: World Bank, Spring 2022 East Asia & The Pacific Update
Regional Round-Up
In Singapore, the Monetary Authority noted this week that while the city state “should record a second consecutive year of above-trend growth,” headwinds are circling. “In the quarters ahead, consumer price inflation in Singapore will increase by more than previously anticipated… All Items inflation is forecast at 4.5–5.5%, from the earlier range of 2.5–3.5%.”
Malaysia is watching the twin impacts of reduced commodity exports from Russia and Ukraine and supply chain logjams in China on its vital semiconductor sector, which contributes “around 7%” of global supply. “A prolonged supply disruption, higher prices of raw materials, increased shipping rates and the shortage of workers could cause a spike in chip prices,” says the Socio-Economic Research Centre (SERC) It projects “5.9% growth for exports in 2022 compared to Bank Negara’s estimate of 10.9%.” That’s a significant revision, and the Ringgit is under pressure.
The continued absence of Chinese travellers will also impact Malaysia, which reopened its borders on 1 April, says the SERC: “If tourists from China are not coming back in a big way, the anticipated rebound in tourism-related industries will be somewhat smaller than pre-pandemic levels.”
Volatile oil prices are triggering global inflation and fluctuating jet fuel costs. Two notable peaks in the price of Brent Crude oil are evident since Russia’s invasion of Ukraine on 24 February. A 3rd peak is emerging on the right of this 12-month tracker graph by Markets Insider.
Cambodia, South East Asia’s largest net energy importer as a percentage of GDP, was among the first countries in the region to report in detail on the impacts of inflation. This piece by The Phnom Penh Post (in which I am quoted) notes that rising oil prices could deplete the nation’s foreign exchange reserves and place downward pressure on the Cambodian Riel.
Laos, South East Asia’s second-highest net energy importer as a percentage of GDP, is yet to fully reopen its borders and is experiencing “uncontrollable inflation.” This has reached a 5-year high, according to The Laotian Times. The government is considering reducing VAT on fuel to try and cool price rises.
Thailand is South East Asia’s third-highest net energy importer as a percentage of GDP. It continues to tie itself in knots about removing (or not) its on-arrival PCR test, and admits the pressure to “mitigate the economic damage caused by two years of the pandemic” is intense.
Bangkok Post reported this week of a “desperate need to get the economy back on track, leaving the government no choice but to work toward a full-scale reopening of the country.” This comes despite fears of a COVID-19 case spike after the Songkran holiday, and a low booster vaccination rate among Thai seniors.
Strong economic growth in 2022 paired with rising inflation are projected for Vietnam, according to both the Asian Development Bank and Standard Chartered. This week, Russia and Vietnam discussed ways to promote agricultural trade.” It is also stepping up food products and coffee exports to Europe, notes Tuoi Tre News.
Meanwhile, a proposal to raise the price cap for airlines facing fuel price hikes “wont’t affect inflation,” according to the Civil Aviation Administration of Vietnam.
In the Philippines, election fervour is flavouring all policy decisions. A cyclone this week killed more than 160 people and displaced more than 1.7 million in central regions. The Central Bank said this week that inflation reached a 6-month high of 4% in March. It raised the 2022 inflation forecast to 4.3%, from the original target of 3.7%, and said it doesn’t expect inflation to moderate until Q1 of 2023.
As the current president to the G20, Indonesia is sweating on hosting the G20 Summit in Bali in November. Russia is the world’s 12th-largest economy and a member of the G20, and President Putin would likely attend. “The G20 now reflects the reality of a dysfunctional global order in which the West is set against China and Russia, with other major global emerging markets stuck awkwardly in the middle,” writes James Crabtree in this excellent piece for Nikkei Asia.
Meanwhile, Indonesia, which is a major oil producer, plans to increase the quota for subsidised 90-octane Pertalite fuel and diesel. The central bank is yet to raise interest rates, though, saying its priorities are “to stabilise the exchange rate, normalise liquidity, and then estimate inflation to determine the interest rates.”
And, ending on an upbeat note, “12 international airlines have resumed regular operations at I Gusti Ngurah Rai Airport in the Indonesian resort island of Bali since February 2022,” notes Antara.
More to come, no doubt.
South East Asia Travel & Tourism Braces for Long-Term Impacts of the Russia-Ukraine War
50 days after Russia invaded Ukraine, The South East Asia Travel Show sifts through the impacts for travel, tourism and the regional economic outlook. We break down the show into 4 key sections:
The enduring effects of COVID-19
The Initial & Current War Impacts on Travel & Tourism in South East Asia
The Looming Economic Headwinds
The Big Questions Up Ahead.
En route, we journey from jet fuel price volatility to interest rate rises, worsening food inflation to re-routed long-haul flights and revised visitor arrival projections to a shifting focus toward the Indian travel market.
Plus, will tourism boards step up their domestic travel promotions? How will they adapt their international marketing? And can intra-ASEAN travel hold up the sky?
Listen to South East Asia Travel & Tourism Braces for Long-Term Impacts of the Russia-Ukraine War:
🎧 Website 🎧 Spotify 🎧 Apple Podcasts
Or search for The South East Asia Travel Show on any podcast platform.
— DON’T MISS! Wednesday’s new episode, which will discuss Thailand’s Tourism Outlook in 2022, with Bangkok-based Vincent Vichit-Vadakan.
And, that’s a wrap for Issue 79.
Until next week, find me on Twitter, LinkedIn, the Asia Travel Re:Set website and The South East Asia Travel Show.
Happy travels,
Gary