The economic impact of Ukraine crisis on Thailand will be determined by how long the hostilities last and if they grow, according to economic specialists.
Businesses in Thailand are already feeling the impact. In Vietnam, the economic impact of Ukraine crisis is also felt by Vietnamese businesses.
In reaction to Russian forces entering Ukraine last week, the US and its allies placed sanctions on Russia and Russian leaders, threatening more worse measures.
Sanctions imposed by the United States, the European Union, the United Kingdom, Japan, and Australia include freezing the assets of Russian banks, freezing the personal assets of Russian President Vladimir Putin and his inner circle, an export ban on materials used in oil refineries, halting the export of goods such as semiconductors, cutting high-tech imports to prevent Russia from developing its military capabilities, and prohibiting major Russian companies and the state from raising funds or borrowing.
The US has also barred Putin and Russian Foreign Minister, Sergei Lavrov, from traveling.
On February 25, Thailand’s Foreign Ministry announced a plan to evacuate 236 Thais residing in Ukraine.
Thai consumers bear the economic impact of Ukraine crisis on Thailand
Even before the invasion, Thai consumers faced high oil costs, prompting the government to reduce the excise tax on fuel in an effort to maintain retail prices under Bt30 per liter.
The conflict has exacerbated the issue, with global petroleum prices surging to more than $100 a barrel on Thursday (February 24), when Russia launched a military operation against its neighbor.
Despite a drop in crude oil prices on Friday, oil prices remain high at close to $100 per barrel since Western countries have not yet blocked Russian oil and gas imports.
“Higher oil prices may persist for another three months,” predicts Kobsidthi Silpachai, Kasikornbank’s head of Capital Markets Research.
If the West bans Russian oil imports, it will have an impact on world supplies because Russia generates approximately 10-11 percent of global output, sending prices even higher.
According to Kobsidthi, global oil consumption was 99.8 million barrels per day in the fourth quarter of last year, while supply was 97.8 million barrels, leading to high oil prices as demand outstripped supply.
Russia generated 10.8 million barrels per day of the total supply.
The revival of tourism suffers a setback
Thailand’s tourism industry has witnessed a partial rebound since the country reopened to international travelers in November, but current visitor numbers are much below the 40 million arrivals in 2019, the year before the COVID-19 epidemic struck.
The National Economic and Social Development Council predicts 5 million international tourists this year as Thailand continues to open its doors despite an increase in new COVID cases, particularly the Omicron form. The tourists are estimated to generate Bt420 billion ($13 billion) in revenue for Thailand.
Kobsidthi, on the other hand, voiced fear that the Russia-Ukraine war may harm tourism. “The cost of air travel and related transportation will remain high and this will discourage travel,” he said.
The tourist industry had anticipated a return to normality in the coming years, but the recent geopolitical crisis will push the recovery back until 2026, according to Kobsidthi.
According to the Finance Ministry’s Fiscal Policy Office, the number of international tourists would increase to 7 million, with 450,000 from Russia.
If the Russians are unable to travel due to the war, Thailand might lose Bt35.95 billion in potential revenue, or 0.2 percent of GDP, according to Pisit Puapan, executive director of the Fiscal Policy Office’s macroeconomic policy.
Thailand’s exports suffer as a result of the economic impact of Ukraine crisis on Thailand
Deputy Prime Minister and Commerce Minister Jurin Laksanawisit said his government was closely monitoring the economic impact of Ukraine crisis on Thailand, especially on logistics between Thailand and the two nations. According to Jurin’s preliminary evaluation, Thai exports to global markets are having both good and negative effects.
The most concerning is the price of oil, which will effect transportation and production expenses, as well as future product pricing, according to him.
On a positive note, if Russia or Ukraine become entangled in a lengthy war, Thailand may discover new markets for items previously provided by Russia or Ukraine.
Russia, for example, sends rubber products to the United States for around $170 million per year, while Thailand also exports similar items to the United States for an estimated value of more than $155 million. Thailand may be able to replace Russia’s rubber shipments to the US market.
Russian fisheries exports to the EU are also estimated to be worth $50 million per year. Thailand is one nation that has the potential to replace the UK’s seafood supplies. Thailand now exports fisheries goods to the United Kingdom for roughly $50 million per year. However, owing to current events, the issue cannot be adequately appraised, according to Jurin.
Russia and Ukraine have commercial ties
According to the Department of International Trade Promotion, Russia is Thailand’s 30th most significant commercial partner, while Ukraine is Thailand’s 63rd most important trading partner.
Last year, two-way commerce between Thailand and Russia totaled $2.8 billion, a 12.8 percent increase over the previous year. Thailand’s exports were around $1 billion, while Russia’s purchases were approximately $1.8 billion, resulting in a trade surplus for Russia. Automobiles and parts, tyres, equipment and components, canned and processed food, and plastic pellets were major Thai exports. Thailand imported crude oil, fertilizer and insecticides, ore and steel, as well as airplanes and gliders.
Bilateral commerce with Ukraine was $386.5 million, a 25.6 percent increase from the previous year. Thailand’s exports to Ukraine totaled $134.8 million, while Ukraine’s imports totaled $251.7 million. Thailand’s top exports were autos and parts, rubber goods, canned and processed fruit, canned seafood, and plastic beads. Thailand imported plants and plant products from Ukraine, as well as iron and steel, logs, metal scraps, sawn wood and products, ore, and mineral goods.
Stagflation is a possibility
The well-known economist Nouriel Roubini, who forecast the 2008 “Hamburger crisis,” has warned that the Ukraine war might intensify hostilities between world giants – the US and the West on one side vs Russia, China, North Korea, and Iran on the other.
“In terms of the economy, a global stagflationary recession is now highly likely,” he wrote on Project Syndicate.
The Ukraine conflict might cause a large negative supply shock in a global economy still reeling from COVID-19 and a year-long buildup of inflationary pressures. He predicts that the shock will have a negative impact on growth and raise prices at a time when inflation expectations are already becoming unanchored. Russia and Ukraine are significant raw material and food product exporters.
Kobsidthi agreed with Roubini, predicting that global stagflation will be devastating to Thailand’s export-led economy.
Prior to the invasion, the International Monetary Fund anticipated that the world economy would increase at 4.4 percent this year, down from 5.9 percent last year. It predicted that advanced countries would expand at a 3.9 percent annual rate, while emerging markets and developing economies would rise at a 4.8 percent annual rate.
Meanwhile, Anusorn Tamajai, former dean of Rangsit University’s Economics Faculty, was concerned that Thailand was on the verge of embracing stagflation due to the country’s reliance on oil and energy imports. Global chip and semiconductor supply may be reduced, affecting vehicle and electronic exports.
Russia has been cut off from financial markets
The EU, US, and their allies decided to cut a number of Russian banks off from the Society for Worldwide Interbank Financial Telecommunication (SWIFT), the main international payment system, as well as freeze the assets of Russia’s central bank, in a bold move that could have far-reaching consequences. Russia’s capacity to access its offshore reserves will be significantly hampered as a result of the move.
The goal is to “further isolate Russia from the international financial system,” according to a joint statement. The sanctions are the most severe penalties imposed on Russia for its invasion of Ukraine to far.
SWIFT is a secure communications system that allows for fast payments in international trade.
Earlier, when asked about the matter and the economic impact of Ukraine crisis on Thailand on Thailand, Bank of Thailand assistant governor Chantavarn Sucharitakul stated that she was unsure whether a final decision had been reached to remove Russia from SWIFT.
According to some news sources, Germany is opposed to this alternative since it would prevent German energy importers from remitting payments to Russia.
“We are closely monitoring developments,” Chantavarn said, adding that it was too early to comment on the developing scenario.