Thai Economy Hit by Double Blow: Energy Crisis and Capital Outflow

The Middle East conflict is exacerbating Thailand's already weak economy by driving up energy prices and causing foreign capital to flee. In March, foreign investors significantly withdrew from Thailand's stock and bond markets, with net sales of $823 million in stocks and outflows of $705 million in bonds, marking the largest capital outflow since October 2024. Thailand's high dependence on Middle Eastern energy, with nearly half its oil and gas sourced from the region, makes it vulnerable. The Bank of Thailand has lowered its 2026 GDP growth forecast to 1.3%, warning of potential stagflation if the conflict persists and oil prices remain above $100 per barrel. Major industries including manufacturing, exports, agriculture, tourism, and real estate are facing pressure, with production declining, factories halting operations, and costs soaring. The Federation of Thai Industries reported a significant drop in new factory establishments and an increase in closures in the first two months of the year, alongside rising raw material prices. Exports are projected to decline by up to 3%, and tourist arrivals have been revised down. Rising construction costs are also causing developers to postpone new projects. The energy crisis poses a challenge to government fiscal plans, as public debt is nearing the 70% limit, potentially requiring revisions to medium-term fiscal plans and increasing debt burdens.