The effects of sanctions against Russia would not derail the overall economic recovery path said the Bank of Thailand in its latest issue of the minutes of the Monetary Policy Committee Meeting.
The direct impacts on the Thai economy were limited since the value of exports to Russia in 2021 was only 0.4 percent of total exports and Russian tourists accounted for only 4 percent of total foreign tourists before the pandemic.
Edited Minutes of the Monetary Policy Committee Meeting (No. 2/2022) 25 and 30 March 2022, Bank of Thailand Publication Date: 12 April 2022
Nevertheless, the Bank of Thailand also expressed concerns that the escalation of the Russia-Ukraine war might lead to global geopolitical tensions that pose uncertainties in the future. These would aggravate global supply chains that had yet to resume their pre-pandemic functioning or would reshape global trade and investment into blocs(deglobalization).
Thai economy to grow 3.2% in 2022, 4.4% in 2023
The Thai economy would continue to recover, expanding by 3.2 percent in 2022 and 4.4
percent in 2023 according to the Boto latest estimates. This would be driven mainly by improving domestic demand as well as a resurgence in foreign tourist arrivals, which were expected to reach 19 million in 2023.
Indirects spillover effects
The main impact on the Thai economy would be the indirect spillover effects on energy and commodity prices added the Bank of Thailand noting that these would result in higher costs of goods and living expenses, a dampened domestic purchasing power, as well as a slowdown in external demand.
Downside risks to short-term growth increased
- There could be prolonged shortages of raw materials in certain industries. In particular, commodities mostly produced by Russia and Ukraine could face more severe shortages, including pig iron, chemical fertilizers, wheat, and minerals used in the manufacture of automobiles and electronics.
- Households and businesses could be affected by higher living costs and higher production costs, particularly the vulnerable groups. Non-farm income was still below the pre-pandemic level.
Headline inflation to reach 4.9% in 2022
Headline inflation for the full year 2022 was expected to exceed the target range, reaching 4.9 percent, driven primarily by rising energy prices and the pass-through of food prices. Inflation could exceed 5 percent in the second and third quarters, mainly attributed to the low-base effect of crude oil prices and government assistance measures in 2021.
Policy rate remains unchanged to 0.5%
The Committee voted unanimously to maintain the policy rate at 0.50 percent to help
facilitate a sustained economic recovery
Overall, the Committee assessed that the Thai economic recovery would remain intact in 2022 and 2023, despite impacts from sanctions against Russia which led to higher energy and commodity prices as well as a slowdown in external demand. Average inflation for the full year 2022 would exceed the target range but was expected to decline and return to target in early 2023 with energy and food prices stabilizing.