If the Middle East conflict lasts for three months, could Thailand's economic growth rate be cut in half?

The ongoing tension in the Middle East is exerting significant downward pressure on Thailand’s economy through three main channels: shrinking tourism, blocked exports, and rising energy prices.

According to the University of the Thai Chamber of Commerce (UTCC), if the tensions in the Middle East persist for three months, Thailand’s GDP growth this year could be cut by nearly half from the previous forecast of 2%. In 2024, Thailand’s economic growth is projected at 2.4%.

In a more pessimistic scenario, if the conflict continues for six months, the slowdown could widen to 2.3 percentage points, potentially causing the economy to contract—marking Thailand’s first annual negative growth since the COVID-19 pandemic in 2020.

Beyond the risk of slower growth, the organization also warns that fiscal pressure will increase, with the government possibly needing to spend over 70 billion Thai Baht (about $2.2 billion) to offset rising energy costs.

Tourism is the most directly affected sector, with Phuket hotel bookings already seeing a 20% cancellation rate

Tourism is seen as the most immediate transmission channel of this impact. Thailand had planned to attract 36.7 million foreign visitors this year, but Europeans and Middle Eastern travelers account for about a quarter of total arrivals. As travelers from these regions cut back on trips, achieving this target faces increasing challenges.

The European tourism market is considered the most vulnerable. Due to Europe’s heavy reliance on connecting flights through Middle Eastern hubs, unrest in the Middle East has disrupted routes and caused ticket prices to soar. This could lead to a significant drop in bookings during peak travel seasons like Easter.

A survey of UTCC members shows that in the southern region—famous for beaches and nightlife, especially Phuket—about 20% of hotel bookings have been canceled, mainly by European tourists. Meanwhile, local businesses report rising logistics costs.

Exports and energy are both under pressure, with the automotive and machinery sectors being particularly vulnerable

The impact is not limited to tourism. Shipping disruptions have affected Thailand’s export routes through Europe, and industries heavily dependent on European and Middle Eastern markets, such as automotive and machinery, face greater spillover risks.

At the same time, rising energy prices are passing through to businesses, further increasing production and logistics costs. UTCC warns that if tensions last for three months, government spending on energy subsidies could exceed 70 billion Thai Baht, adding further strain to an already tight budget.

With multiple factors converging, Thailand’s already modest growth forecast for this year faces further downward revision, and policy response options are limited.

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