KASIKORN RESEARCH CENTER

Inflation could surge 8% if military conflict in ME erupts

THE NATION

BANGKOK: -- Thailand's inflation could spike by 8 per cent in 2012, should oil prices spike to above US$200 (Bt6,000) to $250 per barrel if there is a military confrontation in the Middle East and bring this year's average to $195, said Kasikorn Research Centre.

The situation is based on the worst-case scenario that the conflict in the Middle East is prolonged until the end of this year.

Tensions are growing of supply disruptions and a possible military confrontation in the Middle East as Iran threatens to halt oil exports through the Strait of Hormuz in retaliation to sanctions by the EU and the US. If the situation worsens, the world may face yet another oil crisis reminiscent of the 1970s and 80s.

The research centre expected this to cause global stagflation. Due to the spiralling impact on Thailand's inflation, private consumption would be under pressure. Thai exports could contract up to 20 per cent on faltering demand, while the economy could contract 5.5 per cent, against the current projected growth of 4.5-6 per cent.

"Although a military confrontation between Iran and the West is believed to be unlikely - as many see it as a 'zero-sum' game - and the US has taken a clear stance of refraining from military aggression or subversive action, if the stand-off over Iran's nuclear ambitions continues to heighten geopolitical risks, it would add further strain to an already tight oil market. These developments are heightening anxiety toward a possible severe oil shock within the foreseeable future," it said.

KResearch has analysed that if the dispute turns into a military confrontation, crude oil prices could more than double to above $200-$250 per barrel. In a worst-case scenario, if this conflict is prolonged until the end of the year, it is expected that the average price of Dubai crude oil this year could surge to $195 per barrel, up 84 per cent year on year.

Given this, the world economy could then face stagflation and Thailand's inflation in 2012 could average a staggering 8 per cent, thus adding immense pressure to private consumption.

Thai exports could contract up to 20 per cent on a faltering global economy. As a result, the Thai economy could shrink (-) 5.5 per cent, against current projected growth of 4.5-6.0 per cent.

Meanwhile, Nomura Research warned in its latest report that Asian economies, a major net importer of oil as a whole, will be much more adversely affected than most other regions if oil prices keep rising.

The Japanese research house came up with three scenarios.

When Brent averages this year at around $110 per barrel, the Asia ex-Japan GDP growth will be 6.6 per cent. In a bad scenario, if the price of oil averages $125 in each of the four quarters of this year, Nomura forecast total GDP growth to slow to 6.4 per cent, and slow further to 6.1 per cent in an ugly scenario when the price of oil averages $135 for the year.

Among the individual economies, Nomura predicted that growth would be hit the hardest with a one percentage point fall in India, South Korea, Thailand and the Philippines, while China, Malaysia and Singapore would be the least affected if the ugly scenario takes place. Inflation in the region would rise from 4.5 per cent in a good scenario to 5.2 per cent, led by big surges of 1.8 percentage point in the Philippines and Thailand.

The price of Brent crude was up nearly 15 per cent last week from $108 per barrel at the end of last year, hovering at about $124 per barrel. While this pales in comparison with the 364-per-cent surge over the previous five years to the peak of $144 in July 2008, Nomura said the recent run-up is not insignificant and the current level is already relatively high.

Given that Asia ex-Japan’s annual net imports of crude and refined petroleum increased from $234 billion in 2009 to $329 billion in 2010 and to a record $447 billion in 2011, Nomura estimated a US dollar per barrel rise in Brent crude could add $3.5 billion to Asia’s monthly net oil import bill. Although Asia, ex-Japan, is not completely without oil reserves but with its massive industrialisation and growing consumer affluence, it only produces what is enough to cover one-third of its needs. Asia ex-Japan's 2012 total current account surplus will narrow from 1.4 per cent of GDP in the good scenario to 0.6 per cent in the ugly scenario, but with some big divergences across the region. In the ugly scenario, India's current account deficit will increase to 4 per cent of GDP, while Malaysia's current account surplus will swell to 11.5 per cent of GDP.

As for aggregate fiscal deficit in Asia ex-Japan, it will widen from 2.1 per cent of GDP in a good scenario to 2.8 per cent in the ugly scenario, led by increases of 0.9 percentage point in India, South Korea and the Philippines. Of these three, India would have the largest fiscal deficit at 5.9 per cent of GDP.

-- The Nation 2012-03-08

I don’t even think that will change any of the traffic jam in Bangkok. Thais love their cars, they stop eating before stop driving

A potential global conflict centered on the middle east involving several nuclear armed nations and the worst case scenario for Thailand is a spike in inflation to 8% - sounds like a good deal to me!

A potential global conflict centered on the middle east involving several nuclear armed nations and the worst case scenario for Thailand is a spike in inflation to 8% - sounds like a good deal to me!

You forget that Thailand is friends with everyone

if if if if..

you can if everything....

and the worlds end....

typical non story..

Certainly it is true that Thailand has a significant level of price inflation every year, and this is in particular contrast to farang teacher's salaries, which in most of the country have languished at the same low approximately 30,000 baht/month for about 15 years now. It is definitely getting very difficult for teachers to live, much less save anything.