The Thai government is under increasing pressure due to rising oil prices, with local diesel prices projected to reach 60 baht per liter. Yangyong Taicharoon, the chief economist at the Economic Information Center of Siam Commercial Bank, noted that the ongoing conflict in the Middle East is directly affecting energy prices, prompting a shift in government policy from broad oil price support to a managed float policy.
According to Yangyong, a complete liberalization of energy prices could lead to a significant increase in diesel prices, negatively impacting consumer spending, especially during major holidays such as Songkran. He emphasized the importance of implementing price adjustments smoothly to avoid any economic shocks.
Government Response to Rising Oil Prices
All eyes are on how the government will handle the surge in oil prices, as artificially keeping prices low is deemed unsustainable. Yangyong points out that this could lead to an increase in public debt, which is already at high levels, raising concerns about the country's credit rating.
Moreover, allocating limited resources for significant support carries substantial risks, as continued high energy consumption amid rising global prices could result in a large trade deficit and an imbalance in the current account.
Historical Context of Economic Crises
Historically, Thailand has faced economic crises due to rising oil prices, with the 1997 crisis being a prime example when foreign reserves were depleted to defend the currency. Currently, the situation in the Middle East, including the ongoing conflict, is expected to impact global oil prices, threatening economic growth in Thailand.
Before the conflict, forecasts indicated an economic growth rate of 2% with an average oil price of $68 per barrel. However, the current situation could push prices above $100 per barrel, adversely affecting GDP.
Economic Impact and Consequences
Forecasts suggest that rising oil prices will directly affect GDP, with expectations that Thailand's GDP could decline by 0.02-0.03 percentage points for every $1 increase in the price of oil. If high prices persist for an extended period, the impact will be much greater.
In the worst-case scenarios, if the conflict lasts for four months, economic growth could deteriorate to 1.1% and inflation could rise to 4-5%. This underscores the urgent need for the adoption of flexible and adaptable economic policies.
Implications for the Arab Region
Arab countries are also affected by rising oil prices, as the region is one of the largest oil producers in the world. Any increase in prices impacts Arab economies and heightens inflation risks. Additionally, conflicts in the Middle East affect the stability of global markets, complicating the economic situation in Arab nations.
In conclusion, the current situation in Thailand requires swift and effective actions to address the economic challenges posed by rising oil prices, while also considering the potential impacts on both the local and international economies.