IN SLASHING its 2026 GDP forecast from 1.9 to just 1.2 percent should the Middle East war drag on and escalate Kasikorn Research Centre (KResearch) warned that Thailand also risks being hit by stagflation and a “Triple Deficit”, PPTVHD36 said yesterday (March 21).
Mr. Burin Adulwattana, managing director and chief economist of KResearch, said the escalating conflict in the Middle East directly impacts the recovery of the Thai economy, leading to a revision of the economic forecast. Previously, the centre projected 1.9% growth this year, based on an improving global economic outlook and manageable oil prices in early 2026, but this could now drop to just 1.2 percent.
After the US-Israel war on Iran started on Feb. 28 the situation has changed in unexpected ways. Soaring oil prices and uncertainty in the transportation sector have become major negative factors, particularly affecting upstream raw material costs such as helium, fertilisers, oil, and natural gas, which are crucial for production.
KResearch has divided its impact assessment into two scenarios:
Scenario 1: If the conflict is resolved within two months, GDP growth is projected to be revised down by approximately 0.2 percent to around 1.7 percent, while inflation accelerates from 0.4 percent to 0.9 percent.
Scenario 2: Prolonged and Intense: If the war drags on and crude oil prices remain above $130 per barrel for more than three months, it could pull GDP from 1.9 percent to just 1.2 percent. In the worst-case scenario, the Thai economy may not grow at all; the first quarter might see growth, but the remaining quarters would be negative, leading to a recession. Inflation could also reach 3%.
Regarding the industries directly affected, Burin stated that high-energy consuming and petrochemical groups are facing a severe crisis because they cannot import feedstock for production. This has a ripple effect on the plastics and PVC industries, which will then spread to downstream industries. Food packaging will be in short supply and its price will increase.
Furthermore, shipping problems are a significant obstacle, with freight rates increasing 4-5 times, while insurance costs for some routes have skyrocketed 10-80 times. Shipping is forced to detour around the Cape of Good Hope, adding at least two weeks to transit times. There is also global disruption due to shipping companies declaring force majeure, opting only for the most profitable routes.
Recommendations for the new government
Regarding recommendations for the new government, Burin emphasised that the urgent task is to manage energy and raw material resources to control the cost of living. While the situation is expected to improve within two months, the government must have measures in place to address short-term energy shortages, including considering the temporary reintroduction of coal if necessary, as it is readily available and less affected by geopolitical factors than oil and natural gas.
“We believe the Asian economy will survive because the supply chain mechanisms will gradually adjust, similar to the 1973 oil crisis,” he said.
However, in the meantime, the public should not panic, but must use energy sparingly, and the government should not interfere too much with the market price mechanisms of industrial goods, as this could lead to shortages and ultimately market collapse.
Thailand must accelerate clean energy mix
In the long term, this crisis serves as a wake-up call for Thailand to accelerate the adjustment of its clean energy mix, as Asia currently relies heavily on oil through the Strait of Hormuz, accounting for up to 60% of its supply.
Therefore, the government should promote solar energy, bioenergy, and consider nuclear energy or small-scale nuclear power as alternatives to create future economic stability, similar to China’s model, which was not significantly affected by this crisis because it had prepared for clean energy for a long time.
Thailand faces a “Triple Deficit” situation
Regarding financial stability, Burin voiced concern about the fiscal burden from oil price controls, a policy Thailand is one of the few countries still using, while others allow prices to be determined by market mechanisms. This has resulted in Thailand facing a “Triple Deficit,” or deficits in three areas: fiscal deficit, energy deficit, and deficit due to higher import prices.
These factors have put continuous downward pressure on the Thai baht, which is currently trading at 32.80 – 33.00 baht per dollar and could weaken further if oil prices remain high, as Thailand imports almost 1 million barrels of crude oil per day.
Furthermore, it is estimated that high oil prices and declining confidence are impacting Thailand’s tourism sector. There are signs of a 10-15 percent cancellation of hotel and airline bookings during the upcoming Songkran festival.
However, this crisis is expected to see an increase in short-stay tourists, while the number of long-haul tourists is projected to decrease by more than 1 million from the original annual forecast, representing a loss of approximately 80 billion baht.
CAPTIONS:
Top: Storm lashing Bangkok. Photo – PPTVHD36
Insert: Kasikorn Research Centre Managing Director and Chief Economist Burin Adulwattana. Photo – PPTVHD36
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