Thailand to suffer from higher oil price and lack of tourism revenue as Ukraine war sends weak economy into tailspin

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Thailand, which imports about 90% of its energy needs, is set to face yet another year of higher energy cost that could wipe out much of the economic gains from the country’s reopening.

The National Economic & Social Development Board (NESDC) said that the ongoing fragility in the global economy is likely to have an impact on the overall growth projections it had made just 14-days ago.

The NESDC, a government think-tank, said that the ongoing conflict between Russia and Ukraine is likely to have a double impact on the Thai economy. Danucha Phichayanan, the secretary general of NESDC, said that the conflict would not only lower tourist numbers but also push up crude oil prices to near all-time high levels.

The price of crude oil is currently hovering around $140/barrel, the industry’s highest point since 2008, and industry insiders say that the likelihood of oil remaining above $100-120/barrel throughout 2022 is very likely.

“We are likely to see high oil prices throughout the year, maybe in the region of $100 US Dollars owing to under investment in the sector globally and demand pick up after the pandemic,” Chaiwat Kovavisarach, President and Chief Executive Officer of Bangchak Petroleum PLC, told Thai Enquirer.

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Shaving off GDP 

The surging oil price will dampen GDP growth projection, with economist predicting that countries across the region including net-energy importers like India, Thailand and Philippines feeling the impact the most.

“A sustained rise in the oil and food prices would have adverse impact on Asian economies, manifested through higher inflation, weaker current account and fiscal balances, and a squeezed on economic growth,” Sonal Verma, chief economist of Nomura said in a report to clients.

“In such scenario India, Thailand and the Philippines are the biggest losers, while Malaysia and Indonesia would be relative beneficiaries.” 

In her projection, she states that countries such as India, Thailand and Philippines would stand to lose -0.20%, -0.08% and -0.07% off their GDP growth rates for every 10% rise in oil price.

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The NESDC predicted on February 21 that the country’s GDP would grow between 3.5-4.5%, just 3-days before the Russian strike on Ukraine.

Verma of Nomura is not the only person who was predicting a impact on Thailand to be negative, Valerie Chan, analyst at Swiss banking giant UBS, said that Thailand and the Philippines is likely to suffer the most among Asean countries.

“Thailand’s and the Philippines’ trade balances could see deeper deficits given the two countries’ net energy importer profiles,” UBS’ Valerie said in a note to clients on Friday.

Adding that in the Philippines, negative trade balances remained deep in recent months at around $ 5 billion. the risks from higher oil prices and limited export buffers could further deepen its trade deficit by another $2-3 billion in the coming months. 

As for Thailand, UBS said that the trade deficit could deepen with higher oil prices. Exports deteriorated from 23% in December to 7.9% year-on-year in January, paring the pickup in exports in November–December. 

“The country’s current account turned into a larger deficit ($2.2 billion) due to a smaller trade surplus, despite improving net service, income, and the transfer account. With a near-term elevated oil price, risks that shipping costs stay high have risen and could weigh on the recovery of Thailand’s current account, which we expect in 2H22.”

Inflation Data

The rising inflation due to higher oil prices and tightening of the policy rates is likely to have an impact on the countries in the region.

Charnon Boonnuch, Thai economist at Nomura says that the rising oil price is likely to add more problems to the already saddled current account deficit of the country. He says that with energy prices accounting for 12.4% of the consumer price index (CPI) basket, the headline CPI numbers are highly sensitive to oil prices and that for every 10% increase in oil price inflation could rise by 0.3%. This has prompted Nomura to put headline CPI for 2022 to be at 3.3% against the Bank of Thailand’s projection of 1.7% and well above the 1-3% that the BoT has set the target at.

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Charnon says that the government’s effort to keep the diesel prices at 30 baht a liter is likely to be extended until as long as oil prices remain high. Apart from these expectations are that other giveaways such as lowering of electricity costs etc. will also be extended.

All this is likely to have an impact on the consumption all across Asia but Thailand’s impact is likely to be limited as the country is a net exporter of food.

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Slowing Tourist Numbers 

Tourism, which was supposed to be the saving grace for the country’s recently opened borders, is likely to see a decline as countries around the world start to feel the pinch of economic slowdown.

Tourism, which accounted for about 15% of Thailand’s pre-pandemic GDP, had nearly come to a halt during the past 2-years and only recently opened up after Thailand implemented the Test & Go scheme.

This has helped shore up the tourism numbers up until the war in Ukraine.

During the month of January alone, Thailand welcomed 134,000 tourists against 7,700 seen in January 2021. The country has said that it wants to see 5.5 million tourists during the course of this year against 427,869 seen during entire 2021.

The pre-pandemic era had seen Thailand welcome nearly 40 million tourists that had generated more than $60 billion in revenue for the country.

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