The Thai economy, which has faced numerous challenges in recent years due to geopolitical tensions, now braces for potential impact stemming from the hostility between Israel and Hamas in the Middle East. Unsurprisingly, this volatility signals an opportunity for global corporations and governments to rationalize increased pricing, a strategy repeated from similar scenarios such as the Russia-Ukraine conflict.
Israel is a significant constituent in Thailand’s commercial tapestry. Being the sixth-largest trading partner in the Middle East and the 40th on a global scale, any disruption can have significant fallout on Thailand’s economy. Trade volumes between the two nations have shown growth, hitting the US$857 million mark from January through August, reflecting an increase of 1.15%. Thai exports to Israel, estimated at US$546 million, demonstrated a year-on-year growth of 12.6% while imports fell by 14.2%, equal to US$311 million.
Aside from trade, Israel has been a burgeoning market for Thai tourism. Prior to the COVID-19 pandemic overtaking global mobility, Israel accounted for 194,081 tourist arrivals in 2019. Astoundingly, despite the ongoing pandemic, approximately 190,000 Israeli tourists visited Thailand within the first three quarters of this year, eclipsing their pre-pandemic mark.
However, the brewing conflict in Gaza poses substantial risks to this stable business relationship. Changes in global energy prices and impacts on other Thai trade partners in the region could see a ripple effect on the Thai economy, highlighting the need for a strong mitigation strategy.
Phusit Ratanakul Sereroengrit, the director-general of the International Trade Promotion Department, highlighted that an economic crisis in Israel triggered by the conflict could reshape its commercial, investment, and trade interactions with countries worldwide, including Thailand. Although short-term conflicts have historically allowed the Israeli economy to bounce back, an extended war could profoundly inhibit Israel’s economic recovery and impact business confidence.
Despite these challenges, some silver linings can be recognized. While increased shipping costs and delays may be a drawback, Thailand might spot opportunities to increase specific exports to Israel, such as rice, canned seafood, processed fruit, rubber products, medical instruments, and pharmaceuticals. However, non-essential exports, including automobiles, auto parts, jewellery, and gems, may face downturns as Israeli consumers limit their spending amidst the conflict.
Focussed on the historical retrospect, Israel’s ongoing conflict with Hamas marks the most fatal fighting between the two parties over the last half-century. A parallel could be drawn to the Yom Kippur War of 1973, which resulted in a 60% drop in the S&P index within a year, pushed oil prices by US$11 per barrel and skyrocketed gold prices. Additionally, the global GDP suffered a drop from over 6% to less than 2% in 1974. Poonpong Naiyanapakorn, the director-general of the Trade Policy and Strategy Office, underscored the possibility of indirect impacts of the conflict on global economic recovery. Escalation in the Middle East could lead to increasing energy prices throughout the year, potentially thwarting global attempts to manage inflation, and as a result, incite another inflation cycle that could further slow the global economy and international trade.
While the situation remains volatile, the probability for the conflict to escalate into a full-blown war is low, according to independent political analyst Somjai Phagaphasvivat. The major powers, namely the US and China, have remained observers, primarily because the conflict does not strike a significant blow on their economies. Disruptions caused by the ongoing Russia-Ukraine war, coupled with the ongoing pandemic, have already caused significant global supply chain disruptions. Companies are considering reshoring or nearshoring as alternative strategies to manage costs. “Friend-shoring,” i.e. sourcing from countries regarded as political and economic allies, have also gained traction as a strategic move.
Even amidst these geopolitical difficulties, optimism persists. Siripakorn Cheawsamoot, the deputy governor of the Tourism Authority of Thailand (TAT), expressed confidence that escalating conflicts will not extend to regional countries. As a positive sign, flight numbers from the Middle East have remained stable, and El Al Airlines has even requested to increase flights to the popular destination of Phuket due to higher demand. The TAT expects continued growth from the Middle East based on performance within the first half of the year.
Be First to Comment