The world's economy and businesses have suffered from the Russia-Ukraine war over the past year, hamstrung by high energy prices, inflationary pressure and logistics disruptions.
As the one-year anniversary of Russia's invasion of Ukraine approaches this Friday, Ukrainian officials are raising concerns about the prospect of another major offensive by Moscow in the coming weeks with freshly mobilised troops.
Ukraine recently received a boost from Western countries' commitments to support it and supply it with weapons.
As uncertainty lingers, the likelihood of a strong post-pandemic economic recovery this year appears remote.
According to the World Bank's Global Economic Prospects report released last month, global growth is expected to slow to 1.7% in 2023, the third-weakest pace in nearly three decades, weighed down by policy tightening aimed at taming high inflation.
The ongoing Russia-Ukraine war is also expected to keep oil prices well above their pre-pandemic level for the next three years, the World Bank said.
With the tepid global economic outlook, export-reliant Thailand could face a challenging year. (continue below)
The Bangkok Post talked with economic analysts and leading business figures about the impact of the ongoing war on the Thai economy over the past 12 months, lessons learned, and what they expect will happen in the second year of the conflict.
GEOPOLITICAL RISK
Somprawin Manprasert, chief economist at SCB EIC, a research centre under Siam Commercial Bank, said the Russia-Ukraine war has lasted longer than forecast.
The conflict is not limited to Russia and Ukraine, resulting in heightened geopolitical risk and a deglobalisation that has caused divisions between the West and China and Russia.
He said over the next 3-5 years, Thai policymakers will face more international challenges concerning both politics and economics. Following this year's general election, the next Thai government should pay more attention to international policy to help the economy move in the right direction.
The Thai economy has benefited from deglobalisation by some measures, especially the relocation of manufacturing bases and foreign tourist arrivals. Mr Somprawin said Thailand should strengthen its economic fundamentals to prepare for the long term.
"In part because of deglobalisation, the Thai business sector, particularly exports, should have trading partners on both sides of the conflict as part of risk diversification," he said.
Tim Leelahaphan, an economist at Standard Chartered Bank (Thai), said the war has spurred deglobalisation and supply chain disruption, continuing a trend from the pandemic and US-China trade war.
The Russia-Ukraine conflict will continue to pressure energy prices and keep inflation at a high level around the world this year, he said.
Even as global inflation steadies and energy prices are expected to decline in the middle of this year, oil prices and inflation are expected to start rising again late this year as a result of China's reopening and higher demand, said Mr Tim.
If global oil prices spike again this year, Thailand is expected to post higher inflation as well, he said.
War has a tremendous human and economic cost, creating upward pressure on inflation and weighing down global economic activities, said Kampon Adireksombat, first senior vice-president at Siam Commercial Bank's Chief Investment Office (SCB CIO).
"While Europe has somewhat managed the energy crisis and avoided a severe recession for now, the risk of economic sanctions, surging global oil prices and stubbornly high inflation is still there," said Mr Kampon.
"As a result, the war remains a key risk for both global and Thai economic growth, inflation and the monetary policy outlook."
Global energy prices, despite coming down from a peak in 2022, are still high.
"European nations may manage to get through the winter, but with the ongoing war and sanctions, cost-push inflation is still on the table for not only Europe, but also other countries around the globe," he said.
Moreover, demand-pull inflation remains strong because of the global reopening, said Mr Kampon.
While inflation has already passed its peak in most countries, the disinflation process will likely be slow, meaning higher interest rates could continue for longer, he said.
As the war drags on, Mr Kampon said a key question is whether European countries can manage the high energy prices, and at what cost.
"With both cost-push and demand-pull inflation, the accumulative impact from higher-for-longer interest rates will likely be more severe, compared with the impact of the first year of the war," he said.
NEW WORLD
Thailand needs to better adapt to the increasingly fragmented world as the "real war" between Russia and Ukraine starts this year, said the Federation of Thai Industries (FTI).
Kriengkrai Thiennukul, chairman of the FTI, views the first year as a test of Russia and Ukraine's military power, with support from the US and its allies. This year may see an escalation, including the use of nuclear weapons, he said.
Economically, Mr Kriengkrai is not limiting the impact to global energy prices, which will remain high and put pressure on living costs. He also sees global polarisation in the future.
"While we don't know whether the war will end in one, two or three years, analysts believe the world's politics will be polarised," said Mr Kriengkrai.
The war could intensify geopolitical conflicts in other regions, including Asia-Pacific. Amid this confusion, small countries like Thailand may be forced to pick sides, he said.
"The next government following the election needs to balance the pros and cons of economic and technology policies," said Mr Kriengkrai.
"Thailand should not depend too much on certain countries. We need to put risk diversification into practice."
He said trade barriers could also force authorities to take sides in the future.
Thailand should brace for far-reaching impacts caused by the conflict, said Mr Kriengkrai.
MULTIPLE REVENUE SOURCES
While it is hard to predict the length of the war and whether it will lead to a new energy price crisis, energy conglomerate Bangchak Corporation Plc (BCP) is bracing for uncertainties by diversifying its sources of revenue through new business expansion and development.
The impact of the global oil price surge last year led many companies to use more renewable energy, while electric vehicles have become more popular, leading to less dependence on fossil fuels.
Global oil prices skyrocketed past US$100 a barrel in the second quarter of last year following concerns over oil supply disruptions as Russia, the second-largest exporter after Saudi Arabia, faced sanctions on its petroleum exports from the US and its allies.
In a previous interview with Chaiwat Kovavisarach, group chief executive and president of BCP, he said he was aware of the automotive industry's shift towards battery-powered cars, but believed demand for oil would remain high for decades, leading the company to invest in an oil refinery.
BCP also announced last month it expects its 55.5-billion-baht buyout of Esso (Thailand) Plc to lead to higher revenue.
The company plans to make biofuel for aircraft, also known as sustainable aviation fuel, from used cooking oil via a joint venture.
BCP is also expanding to the energy logistics sector by supplying liquefied natural gas to factories located outside the service area of onshore gas pipeline networks.
NOT THAT BAD
Sanan Angubolkul, chairman of the Thai Chamber of Commerce, said the war has dealt a heavy blow to the world's economy, causing drastic shortages of cereals, fuel oil and fertiliser. This has led to surging production costs for many products, causing runaway inflation and interest rate hikes around the world.
In addition to the economic impact, mounting geopolitical tensions and signs of political polarisation need to be monitored, he said.
"In 2023, pressure from the US and its allies is expected to intensify, possibly worsening the economic situation of the two sides," said Mr Sanan.
"It is anticipated that Europe and the UK may go into recession, with the University of the Thai Chamber of Commerce [UTCC] forecasting the war would dent global economic growth by 0.4-1%, resulting in relatively high global inflation of 5-6.5% and rising product prices."
Though the war is far from over, he said the impact on Europe has been less harsh than expected as the region avoided an energy crisis during the winter, in part because of relatively light snowfall.
More importantly, China's economy beat expectations as the mainland reopened its borders faster than anticipated, said Mr Sanan. Chinese economic activities are projected to resume at normal levels by the third quarter.
He said shortages of cereals, fuel oil and fertiliser in several countries have greatly eased, but the US economy requires monitoring as it still faces inflationary pressure.
"Despite uncertain global economic prospects, Thailand has a myriad of positive and supporting factors, especially the rapidly recovering tourism sector," said Mr Sanan.
"This year we expect the number of foreign arrivals to reach 25-30 million. China's economy is recovering robustly, while Thailand's exports are likely to eke out growth of 1-2% despite higher production costs and the baht's volatility."
Aat Pisanwanich, director of the Center for International Trade Studies at the UTCC, said the war delivered a negative impact in all dimensions, be it economy, society or international politics.
With continued fighting, he said the negative effect on the world's economy will persist throughout this year, especially in terms of rising production costs, lower exports and volatile foreign exchange.
BUSINESS ADJUSTMENTS
Parcel delivery service operators have been hit hard by rising oil prices.
Flash Express and Kerry Express Thailand plunged into losses last year, partly caused by the fuel price spike.
Komsan Lee, chief executive of Flash Group, which provides the delivery service Flash Express, said the company posted losses last year, pressured by higher fuel prices and other costs linked to pandemic measures.
"The cost of fuel doubled to 40 baht per litre, meaning costs jumped from 300-400 million baht per month to 800 million baht," he said.
Flash Express ramped up efforts to rein in costs, including ensuring effective route management and changing the management structure, said Mr Komsan.
Flash is also studying how to use electric vehicles for delivery service, though tax incentives are not attractive enough for various kinds of vehicles, he said.
Kerry reported it suffered from elevated oil prices, a minimum wage hike and a tight labour market.
For 2023, the company vowed to improve its work processes and equipment to reduce labour dependence.
"We are speeding up our procurement of machines, systems and equipment. Such investments will bring down Kerry's operating costs immediately and take our operations to another level," said Alex Ng, chief executive of Kerry Express Thailand.
"There will always be obstacles in an operating environment, such as inflation, surging fuel prices, labour shortages or macroeconomic uncertainties. A good and responsible market leader should look inwards and find ways to improve cost efficiency, labour productivity and creativity."
LIMITED GROWTH
Despite the ongoing war, Russia was a major source market for arrivals to Thailand last year, registering roughly 435,000 tourists, soaring from 30,759 in 2021 when Thailand's borders were closed during the first half.
With China's borders closed last year, Russian arrivals ranked in the top five and the country has been the top market for Phuket since November.
Prior to the pandemic, Thailand welcomed 1.48 million Russian tourists a year, contributing 102 billion baht to the country.
The Tourism Authority of Thailand (TAT) estimates this year the country will welcome 1 million Russian travellers.
TAT governor Yuthasak Supasorn said while there is tourism demand from Russians, there is still limited flight capacity, which is expected to persist this year.
However, the agency's confidence in predicting 1 million tourists from Russia is based on pent-up demand from the pandemic and the war, he said.
Mr Yuthasak said Russian tourists are spending more as their average length of stay increased to 14 days last year from 12 days, with this trend expected to continue in 2023.
The economic impact of the war, which last year resulted in soaring oil prices that rocked the aviation industry, might ease this year as oil prices are more stable, he said.
"The only negative factor is insufficient flight capacity, which could affect our target of 1 million Russians this year," said Mr Yuthasak.
