Thailand economy

SCB sees stagflation in Thai economy

SCB sees stagflation in Thai economy

War and inflation make recovery fragile

A woman shops at a market in Bangkok on March 15. A higher inflation rate in Thailand could lead to a slower recovery in domestic spending than expected by the EIC. (Photo: Varuth Hirunyatheb)

Thailand’s economy has entered stagflation due to a fragile recovery and soaring prices, says an economist from the Economic Intelligence Center (EIC), a research unit of Siam Commercial Bank (SCB).

The EIC lowered its economic growth forecast for Thailand for 2022 to 2.7% from 3.2%. The revision was attributed to the Russian-Ukrainian war, which sent energy and commodity prices skyrocketing.

Thailand’s annual average headline inflation rate is expected to hit a 14-year high of 4.9% this year, up significantly from a previous forecast of 1.6%, said Yunyong Thaicharoen, chief banking officer. of the SCB and an economist at the EIC.

Under a baseline scenario that sees the end of the war in Ukraine in the second half of this year, the price of Brent crude oil would average US$110 per barrel this year.

If the war lasts until the end of this year, resulting in an energy supply shock, the average oil price would be $133, the EIC said.

For Thailand, the higher inflation rate will lead to a slower recovery in domestic spending than previously forecast by EIC, the center said.

In particular, private consumption will be penalized by a decline in household purchasing power under the effect of soaring fuel and food prices, as well as a timid rebound in wages, which are currently below the rising cost of living.

“Rising costs and lower profit margins will induce businesses to raise prices for mainstream products, passing on rising costs to consumers. In this scenario, low-income people would be affected,” Yunyong said.

Given Thailand’s weak economic recovery amid several external risk factors, the country’s recovery to pre-pandemic levels will be delayed until the third quarter of next year, he said.

Mr Yunyong said the Russian-Ukrainian war will also lead to a drop in the number of Russian and European tourists visiting Thailand, although this will be partially offset by Asian and Asian travellers.

The EIC slightly reduced its projection of foreign tourist arrivals for this year to 5.7 million from 5.9 million, providing the country with annual tourism revenue of 300 billion baht.

Even though the country’s headline inflation rate could exceed the Bank of Thailand’s 1-3% target range this year, the EIC expects the central bank’s Monetary Policy Committee to keep the policy rate unchanged. at 0.5% throughout 2022. Indeed, the central bank is expected to focus on measures to support economic growth.

Based on external uncertainties and money market volatility, the baht is expected to depreciate to around 33.5-34 against the US dollar in the near term, according to EIC.

“The baht will rebound slightly to 32.5-33.5 against the greenback at the end of 2022, as a promising recovery in tourism will help improve the current account balance,” Yunyong said.