Conflict will cost Thailand B245bn
2022 GDP growth dragged to 2-3%
The Russia-Ukraine conflict is estimated to inflict 244.70 billion baht's worth of damage to the Thai economy, dragging GDP growth to only 2-3% this year, if it is extended for the entire year, according to the latest study by the University of the Thai Chamber of Commerce (UTCC).
"The Thai economy is highly likely to grow at a rate of 2-3%, with inflation staying at 5% this year if the Russia-Ukraine conflict is prolonged throughout this year," said Thanavath Phonvichai, president of the UTCC. "This scenario will lead Thailand to enter technical stagflation in 2022."
Stagflation is a combination of stagnation and inflation. It describes an economic condition characterised by slow growth and high unemployment (economic stagnation) mixed with rising prices (inflation).
Stagflation is mostly associated with the 1970s, during which many developed economies experienced rapid inflation and high unemployment as a result of the oil crisis.
Mr Thanavath insisted this estimated impact is the outcome only of the Russia-Ukraine conflict, excluding other headwinds such as the rapid spread of the Omicron variant of Covid.
"Nevertheless, it's too early to make such a dreadful scenario, as the situation is still full of high uncertainties," he said. "The university is still maintaining the Thai economic growth forecast at the rate it made in November last year, but will wait some time before making a new revision possibly in April."
According to Mr Thanavath, the impact of the Russia-Ukraine conflict on the global economy is expected to persist for 1-3 years and it remains difficult to predict the situation.
"The world's economic shock and economic disaster for all countries worldwide are anticipated if global crude oil prices surge to US$200-300 per barrel," said Mr Thanavath. "Likewise, the Thai economy is expected to plunge into contraction this year."
According to Mr Thanavath, every $1 increase in oil price per barrel will raise domestic retail oil prices by 25 satang per litre and lower the Thai GDP by 0.3-0.4 percentage points.
Given such prospects, Mr Thanavath said the government needs to choose appropriate stimulus measures to prevent the economy from any slowdown while maintaining the foreign exchange at 32.50-33 baht per dollar to ensure Thailand's competitiveness.
Sanan Angubolkul, chairman of the Thai Chamber of Commerce, said the business sector has kept a close watch on the Russia-Ukraine conflict, now that the situation is expected to be extended and unlikely to end sometime soon.
He said a sharp rise in global oil prices in light of the Russia-Ukraine conflict may weaken Thailand's economic growth prospects, so the government desperately needs to prepare additional measures, on top of a recent cut in the excise tax on diesel and bunker oil used to generate electricity by the Electricity Generating Authority of Thailand to zero in a bid to lower electricity bills for six months to cope with the impact of oil prices, which are expected to stay at a hefty rate for the entire year.
According to Mr Sanan, the Thai Chamber is monitoring production costs of certain products affected by rising oil prices such as cereals, ores and fertiliser.