Prolonged Middle East Conflict Could Slash Thai GDP by 1.1%, Warns UTCC

 

 

The University of the Thai Chamber of Commerce warns of a potential recession if regional strife persists, citing surging fuel costs and a tourism slump.

 

 

 

The University of the Thai Chamber of Commerce (UTCC) has issued a stark warning regarding the Thai economy, stating that a prolonged conflict in the Middle East could strip up to 1.1% off the national GDP. 

 

In a worst-case scenario where hostilities extend beyond six months, experts warn that Thailand’s economic growth could slide into negative territory.

 

Dr Thanavath Phonvichai, president of the UTCC and Chief Advisor to the Centre for Economic and Business Forecasting, revealed on Friday that while consumer confidence hit a nine-month high in February, the subsequent outbreak of war has fundamentally altered the outlook. 

 

Rising living costs and production expenses are now the primary concerns for the kingdom’s financial stability.

 

 

 

The Three Scenarios

The UTCC has outlined three potential outcomes based on the duration of the conflict:

 

Short-term (1 month): With oil at $90 per barrel, GDP would drop by 0.35% (45% probability).

 

Prolonged (3 months): Oil remains at $90 but natural gas prices spike; GDP would fall by 1.1% (45% probability).

 

Extended Escalation (6 months+): Oil exceeds $100 per barrel, likely pushing Thai GDP into contraction (10% probability).

 

 

Immediate Impact on Tourism and Trade

The tourism sector—Thailand's primary economic engine—has felt the shock immediately. In the first week of the conflict alone, arrivals from Europe and the Middle East plummeted by 18%, or approximately 60,000 visitors. This is largely due to rerouted flight paths and airfares surging by 30–80%.

 

Phuket has been hit hardest, with over 1,300 room nights cancelled already. The UTCC estimates that if the war lasts six months, the tourism industry could lose 29.25 billion baht in total revenue.

 

On the trade front, exports of automobiles and machinery to the UAE and Saudi Arabia are highly vulnerable. Furthermore, global geopolitical risks have caused shipping freight rates to triple, adding immense pressure to exporters.

 

 

 

 

 

Strategic Recommendations for Government

With Thailand’s energy imports accounting for 5% of its GDP (roughly 1 trillion baht), Dr Thanavath urged the government to adopt five proactive measures:

 

Energy Price Flexibility: The government should use the Oil Fuel Fund and excise tax cuts to manage prices. Dr Thanavath suggested a "stepped" increase in the diesel price cap from 30 baht to 35 baht per litre to avoid a sudden economic shock.

 

Logistics Support: Protecting energy prices for large-scale transporters is essential to prevent a spike in consumer goods inflation.

 

"Thailand is Safe" Campaign: A marketing pivot to attract Asian tourists (from China, Malaysia, and India) to compensate for the loss of European markets, emphasising Thailand’s neutrality.

 

National Energy Saving: A government-led campaign encouraging energy efficiency and "Work From Home" initiatives to reduce national fuel consumption.

Liquidity Injections: Utilising state-owned banks, such as GSB and SME Bank, to provide low-interest loans to affected tourism and export businesses to prevent mass layoffs.