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25 Mar 2022

Thai Economy

KResearch downgrades GDP growth forecast to 2.5 percent due to impacts from Russia-Ukraine crisis that has sent oil and food prices soaring (Press Conference 25 March 2022)


        Aside from the spread of the new COVID-19 variant, the Russia-Ukraine conflict presents new risks for the Thai economic recovery in terms of sharply rising prices of energy and commodities including industrial metals and farm products – among major raw materials.  
        Ms. Nattaporn Triratanasirikul, Deputy Managing Director, KASIKORN RESEARCH CENTER Co., Ltd. (KResearch), holds the view that based on the situation at present, KResearch has identified two potential scenarios of impacts from the Russian-Ukraine conflict. In the base case, military attacks would remain limited to certain areas of Ukraine, but no agreement could be reached within this year, and the economic sanctions imposed on Russia by Western countries including the US would persist throughout 2022. In this case, Dubai crude oil prices may average USD105 per barrel, and Thailand’s GDP would grow 2.5 percent for this year. In the best-case scenario, however, GDP growth would be 2.9 percent under the assumption that the Russia-Ukraine rift could be resolved sooner than expected, with a settlement reached within the third quarter of this year. In that case, crude oil prices could decline during 2H22, setting the average oil price at USD90 per barrel for 2022.
        Under either of the above scenarios, inflation is expected to continue rising unabated. In the base-case scenario, KResearch is of the view that the inflation rate will accelerate to 4.5 percent, even as the government has maintained the retail price of diesel fuel at 30 Baht/liter until April 2022. However, the retail diesel fuel price may exceed 30 Baht/liter during certain periods of 2H22 if global crude oil prices keep soaring. Inflation risk may prompt the US Federal Reserve to hike its interest rates beyond the previously signaled increases, to 1.75-2.00 percent by the end of 2022, adding pressure to Thailand’s policy rate.
        Regarding impacts on the Thai business sector, Ms. Kevalin Wangpichayasuk, KResearch Deputy Managing Director, is of the view that the current Russia-Ukraine conflict will push production costs in the industrial sector higher by around 80 billion Baht. While the business sector will bear the brunt of this crisis – albeit with varying degrees of impact for each business based on its reliance upon raw materials and its ability to adjust – some of the impacts will be passed on to consumers as well. Meanwhile, the tourism sector will likely see a decrease in the number of Russian and European tourists. Although international tourist arrivals in Thailand are projected to reach roughly 4 million in 2022, spending by foreign holidaymakers may decline by approximately THB50 billion compared to a no-war scenario. Aside from soaring costs, other service sectors will also feel the impact of consumers’ rising cost of living, which will in turn dampen sales turnover of the business sector. Given this, KResearch assesses that growth in the automotive, electronics, retail and restaurant businesses will slow, compared to a no-war scenario.
        Ms. Thanyalak Vacharachaisurapol, KResearch Deputy Managing Director, added that the financial sanctions imposed on Russia by world powers will have limited direct impact on trade volume between Thailand and the two warring factions, Russia and Ukraine. However, close attention should be paid to the ongoing conflict which may cause financial markets to remain volatile, and fundraising costs which could be on the rise due to uncertainties and the Fed’s policy rate increase. In 2022, corporate bonds amounting to more than 700 billion Baht will be reaching maturity. Moreover, further assistance must be given to heavily affected businesses, especially through the granting of revolving credit to operators that can still maintain their purchase orders, via debt restructuring and asset quality maintenance. Overall, business loans significantly affected by rising costs of oil and raw materials will account for approximately 4-5 percent of the total loan portfolio. Meanwhile, loans in the Thai banking system in 2022 are expected to register growth of 4.5 percent, in the base-case scenario.

Thai Economy