CHINA’S easing of its zero-Covid policy raises prospects for tourism recovery in Asia-Pacific (Apac) economies such as Thailand, for which China was a key source market pre-pandemic, according to Fitch Ratings.
“The effects on Thailand may be particularly important, as several of its credit metrics, including fiscal ones, have deteriorated as a result of weak tourism activity and stepped-up fiscal efforts since 2019,” said the credit rating agency on Tuesday (Jan 31).
While Fitch had already expected a strong recovery for tourism in the region this year, it noted that China’s relaxation of its Covid-19-related travel restrictions took place faster than predicted.
Analysts of Fitch said China’s decision would have a positive effect on domestic employment markets and the external services trade balance, which could lead to further upsides to government credit profiles.
Other economies that stand to benefit most from this trend include Malaysia, Hong Kong and Macao. Fitch also noted that stronger Chinese tourism demand could also boost macroeconomic performance in Singapore, Vietnam and Sri Lanka.
However, the agency cautioned that the tourism rebound in Apac remained vulnerable to risks.
Lower-than-forecasted economic growth in the region and eroded consumer purchasing power due to higher-than-expected inflation may set back travel demand, it said.
Furthermore, Fitch anticipates a slow recovery for Apac’s air travel and tourism sectors. It cited staff shortages, international air traffic capacity constraints and high global energy costs as reasons that may spike travel prices, dampening tourism demand.
Upside risks for government ratings are expected to be limited in the near term as well, Fitch analysts said.
“There is also still a danger that new Covid-19 variants or waves could disrupt or reverse tourism recoveries,” Fitch added.
Countries such as South Korea and Japan recently introduced additional restrictions on Chinese tourists, to limit risks associated with China’s sudden virus spread, prompting China to impose retaliatory travel restrictions.
While Fitch expects these restrictions to be short-lived, it also anticipates South Korea and Japan will experience slower tourism recovery.
“Nonetheless, the credit effects should be limited because of Korea’s and Japan’s strong external positions and low economic reliance on tourism,” Fitch said.
Before the pandemic, China was one of the world’s largest tourism source markets, boasting a total international tourism expenditure of US$254.6 billion in 2019.