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With an oil-driven inflation shock triggered by the war in Ukraine Thailand might miss the government’s forecast of 3.5-4.5% economic growth in 2022, coupled with a record increase in general consumption prices.
A study by the University of the Thai Chamber of Commerce (UTCC) recently reported that the conflict between Russia and Ukraine could cost the Thai economy around 244 billion baht and hinder GDP growth for 2022.
Large oil importers like India and Thailand will be the most affected among Asia-Pacific countries by the ongoing Russia-Ukraine war, S&P Global Ratings has recently said.
“The biggest risk of the Ukraine conflict is market volatility and higher commodity prices; emerging economies with large energy imports are most at risk,”
“India and Thailand are large oil importers and will be the most affected among large Asia-Pacific countries,” S&P added.
Food costs on the rise
According to the IMF Russia and Ukraine are major commodities producers, and disruptions have caused global prices to soar, especially for oil and natural gas. Food costs have jumped, with wheat: the two countries account for nearly 30 percent of world wheat exports and 18 percent of corn, most of which is shipped through Black Sea ports that are now closed.
But differences in diet should also be taken in consideration. In Europe wheat makes up about a quarter of diets, whereas in Southeast Asia, wheat accounts for only 7 percent versus 42 percent for rice, for which price increases so far have been relatively contained
Asia’s food-price pressures should be eased by local production and more reliance on rice than wheat. Costly food and energy imports will boost consumer prices, though subsidies and price caps for fuel, food and fertilizer may ease the immediate impact—but with fiscal costs.How War in Ukraine Is Reverberating Across World’s Regions – Thai News (thailand-business-news.com)
Sanctions will hurt beyond Russia
Overall, Russia and Ukraine are relatively minor economic players in Southeast Asia, with Russia making up just over 0.64 percent of global trade with the region while Ukraine accounts for just 0.11 percent, according to ASEANstats.
But the coming sanctions against Russia will also likely hurt not only Russia but also the US, the West, and emerging markets, especially if they are highly dependent on the export of goods and service like Thailand.
The war in Ukraine will trigger a massive negative supply shock …/… The shock will reduce growth and further increase inflation at a time when inflation expectations are already becoming unanchored.Russia’s War and the Global Economy by Nouriel Roubini – Project Syndicate (project-syndicate.org)
Tourism recovery takes a hit
Tourism will also be hit by the fighting and sanctions: if the Russians are unable to visit because of the war, it could cost Thailand around 0.2 percent of GDP, also stated Pisit Puapan, executive director of the Fiscal Policy Office’s macroeconomic policy.
Some 1.5 million Russian tourists visited Thailand in 2019 before the pandemic, making them the third-largest source of tourism revenue for the country.
Russians were the largest group of tourists visiting Thailand when the country started lifting its Covid-19 travel restrictions in November. Following Russia’s invasion of Ukraine in February, a slew of international sanctions was imposed on businesses and banks, with some Russian airlines canceling flights and global payment firms suspending services.
Since November 1st, when Thailand reopened its doors to tourists with “Thailand Pass” under “Test and Go” and “sandbox” programs, more than 63,000 Russians have arrived in the country, generating about 4.1 billion baht in revenue.