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

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

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

In a more pessimistic scenario, if the conflict lasts for six months, the decline in growth rate could expand to 2.3 percentage points, which may plunge the economy into contraction—marking Thailand’s first annual negative growth since the COVID-19 outbreak in 2020.

In addition to the downside risk to economic growth, the institution also warned that fiscal pressure will rise. The government may need to spend over 70 billion baht (about $2.2 billion) to hedge rising energy costs.

Tourism hit first, Phuket hotels see 20% cancellations

Tourism is regarded as the most direct transmission channel for this shock. Thailand originally planned to attract 36.7 million international tourists this year, but European and Middle Eastern visitors account for about one quarter of total arrivals. As travelers from these regions cut their travel plans, this goal is facing increasingly severe challenges.

The European tourism market is considered the most vulnerable. Because European routes rely heavily on transfers through Middle Eastern hubs, the turmoil in the Middle East has led to route disruptions and sharp increases in ticket prices, wiping out booking demand during peak seasons such as Easter.

A survey of Thai Chamber of Commerce members shows that the southern region famed for beaches and nightlife—especially Phuket—has recorded about 20% hotel booking cancellations, with cancelations mainly from European tourists. Meanwhile, local businesses also report rising logistics costs.

Export and energy under double pressure, auto and machinery sector especially fragile

The shock effect is not limited to tourism. Obstructed shipping has affected Thailand’s export routes via Europe, and industries highly dependent on European and Middle Eastern markets—such as automobiles and machinery—are facing greater spillover risks.

At the same time, rising energy prices are being passed on to the corporate side, further driving up production and logistics costs. UTCC warns that if tensions persist for three months, government fiscal spending needed to subsidize energy costs will exceed 70 billion baht, adding extra pressure to already tight budget space.

Under the influence of these multiple factors, Thailand’s already low growth forecast faces further downward adjustment, and policymakers’ room to respond is also limited.

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