If the Middle East conflict lasts for three months, Thailand's economic growth rate may be halved?

The situation in the Middle East remains tense, significantly putting downward pressure on Thailand's economy through three channels: shrinking tourism, obstructed exports, and rising energy prices. According to estimates by the University of the Thai Chamber of Commerce (UTCC), if the tensions in the Middle East persist for three months, Thailand's GDP growth rate this year may be cut by nearly half from the previous forecast of 2%. In 2024, Thailand's economic growth rate is projected to be 2.4%. In a more pessimistic scenario, if the conflict continues for six months, the decline in growth could expand by 2.3 percentage points, potentially leading the economy into contraction—this would mark the first annual negative growth for Thailand since the COVID-19 pandemic in 2020. In addition to the downward risks to economic growth, the agency also warned that fiscal pressure will rise accordingly, with the government potentially needing to invest over 70 billion Thai Baht (approximately 2.2 billion USD) to offset rising energy costs. Tourism Industry Hit Hard, Phuket Hotel Bookings Show 20% Cancellations The tourism industry is seen as the most direct transmission channel for this shock. Thailand was originally set to attract 36.7 million foreign tourists this year, but European and Middle Eastern tourists account for about a quarter of total inbound visitors, and with travelers from these regions cutting back on travel plans, achieving this target is facing increasingly severe challenges. The European tourism market is considered the most vulnerable. Due to the heavy reliance of European routes on transit routes through Middle Eastern hubs, the turmoil in the Middle East has disrupted these routes and caused significant increases in airfare, leading to a potential evaporation of booking demand during peak travel seasons like Easter. A survey of members of the Thai Chamber of Commerce shows that the southern region, known for its beaches and nightlife—especially Phuket—has recorded about a 20% cancellation rate in hotel bookings, primarily from European tourists. Meanwhile, local businesses are also reporting rising logistics costs. Exports and Energy Under Dual Pressure, Automotive and Machinery Industries Particularly Vulnerable The impact is not limited to the tourism sector. Disruptions in shipping have affected Thailand's export routes to Europe, with industries such as automotive and machinery, which are highly dependent on the European and Middle Eastern markets, facing greater spillover risks. At the same time, rising energy prices are being transmitted to businesses, further increasing production and logistics costs. UTCC warns that if the tensions persist for three months, the government's fiscal expenditure required to subsidize energy costs will exceed 70 billion Thai Baht, adding extra pressure to an already tight budget. Under the combined effects of these multiple factors, Thailand's already low growth expectations for this year face further downward revision pressures, and the policy authorities' room for response is also constrained