The economic future of Thailand is currently shrouded in uncertainty as the continuing conflict in the Middle East places significant strain on global energy markets. This has compelled authorities to revisit growth projections and caution about escalating risks of stagflation.
According to Danucha Pichayanan, Secretary-General of the National Economic and Social Development Council (NESDC), the ongoing conflict is pressing the global energy markets, instigating oil price instability despite nascent signs of negotiations between the U.S. and Iran.
NESDC has proposed four potential scenarios to re-evaluate Thailand’s economic course for 2026.
In the initial scenario, if the skirmishes extend to parts of the region but conclude within a couple of months, disruptions to oil transportation through the Strait of Hormuz and the Red Sea would be temporary, without additional damage to the energy infrastructure. This would lead to a gradual return of oil supply, with prices averaging $85-$95 per barrel for the year. Financial markets will remain unstable, with investors gravitating towards safer assets and the baht devaluing. Thailand’s GDP growth would decelerate to 1.4%, with inflation escalating to 2.7%.
Before the conflict, Thailand’s economy was projected to grow about 2% this year.
In the second scenario, if the conflict broadens to incorporate multiple countries and persists for three to five months, oil production infrastructure could potentially be damaged leading to extended supply disruptions. Average oil prices would inflate to $105-$115 per barrel. This would considerably constrict the global energy supply, trigger inflation, and disrupt industrial supply chains. Numerous economies, including Thailand, could enter a stagflationary phase characterized by slowing growth and inflating prices. Thailand’s GDP would deteriorate to 0.9%, with inflation rising to 4.4%.
The third, more drastic scenario sees a conflict enduring six to nine months, with energy supply from the Middle East slow to recuperate even post-conflict. Oil prices could escalate to $135-$145 per barrel, possibly prompting a severe global recession marked by extensive supply chain disruptions, trade fragmentation, and shortages of both energy and food. In this scenario, Thailand’s GDP growth will sharply plummet to a meager 0.2%, while inflation will surge to 5.8%.
In the grimmest scenario, if the conflict enlarges beyond the Middle East and intensifies globally, this would result in a prolonged global recession, widespread shortages, and the risk of conflict spilling into other regions. Forecasting oil prices, inflation, or economic growth for Thailand under these circumstances would be virtually impossible.
NESDC cautioned that the conflict’s impact goes beyond energy prices, pushing up the cost of goods and undermining purchasing power. As demand diminishes amidst rising inflation, the risk of stagflation becomes more pronounced. Concurrently, supply chain disruptions, especially material shortages, could continue to impede production and industrial activity.
What are the factors driving Thailand’s economic uncertainty?
The primary factor is the ongoing conflict in the Middle East, which is affecting global energy markets and leading to volatility in oil prices. This uncertainty is causing authorities to reassess Thailand’s growth projections and warn about the increasing risk of stagflation.
What are the potential outcomes for Thailand’s economy based on the NESDC’s scenarios?
The outcomes range from a slowdown in GDP growth and a rise in inflation to possible stagflation, severe recessions, and widespread supply chain disruptions depending on the length and spread of the Middle Eastern conflict.
What is the broader impact of the Middle Eastern conflict on Thailand’s economy?
Beyond affecting energy prices, the conflict is expected to drive up the cost of goods, reduce purchasing power, and increase the risk of stagflation. It could also lead to sustained supply chain disruptions, particularly due to material shortages, thus negatively affecting production and industrial activities.
