Amid stagflation fears, fledgling Anutin government juggles economic tools

Faced with weak domestic demand, the Anutin Charnvirakul administration is considering numerous measures to deal with the fallout of the oil crisis caused by the Iran war.

The new government is busy preparing economic relief measures, as oil prices remain sky-high and there is no sign of an immediate end to the Middle East conflict that is triggering an oil crisis worldwide and threatening the global economy.

Economic stimulus plans

Deputy Prime Minister Ekniti Nitithanprapas revealed that the government would shortly raise an extra 500 billion baht through loans to shore up and restructure the economy.

The government plans to relaunch the co-payment scheme aimed at boosting consumer spending amid the rising cost of living. The exact cost of the scheme is yet to be determined, but each eligible person will receive a total of 4,000 baht over four months. An estimated 20 to 30 million people are expected to benefit from the scheme. The government also aims to accelerate public investment spending.

Bleak economic outlook

Despite all the projects in the pipeline, the overall economic outlook remains bleak. Recently, the Finance Ministry cut the GDP forecast for 2026 to 1.6 per cent from 2 per cent due to the oil price shock.

The Fiscal Policy Office (FPO) has highlighted the following factors:

● Growth of major trading partners is expected at 3.0 per cent, a slight slowdown as the Middle East war affects energy supplies, leading to shortages of raw materials and higher costs.

● The baht is expected to average 32 to the US dollar this year, a slight appreciation from last year.

● Dubai crude oil prices are forecast to average US$91 per barrel for the year due to the Middle East conflict. “From the beginning of the year until now, oil prices have averaged $91.12 per barrel. The outlook remains high and volatile because of the conflict in the Middle East, with prices spiking to as much as $104.2 per barrel at some points.”

● The number of foreign tourists is projected at 33.5 million for the full year, lower than the previous estimate. In the first quarter, arrivals totaled 9.32 million, a 2.4 per cent decline year on year, due to war in the Middle East.

● Government spending in 2026 is expected to exceed 4 trillion baht, supported by measures to accelerate public disbursements.

“When growth slows, the authorities must step in to ease hardship and introduce measures to support the transition in energy use and increase incomes. Cooperation is needed from the government, the private sector, and the public,” Vinit Visessuvanapoom, the director-general of the FPO and spokesman for the Ministry of Finance, said.

“As for the cost projection for the ‘Co-pay Plus’ scheme, we still have to wait for more clarity. But last year’s program helped lift GDP by 0.7 percentage point. So the situation is not worrying and still far from ‘stagflation’. The government is prepared to prevent one crisis from triggering another,” he said.

The energy factor

Vinit added that the key negative factor was the prolonged conflict in the Middle East, which had made global oil prices highly volatile. This has led to an upward revision of the headline inflation target from 0.3 per cent to 3.0 per cent, which is the upper bound of the target range.

Beyond energy, the current situation has also hurt the tourism industry. Foreign arrivals are now expected to fall to around 33 million this year. At the same time, the private sector has started to delay investment plans while waiting for greater clarity.

However, he noted that exports were continuing to grow, and together with accelerated budget disbursement and public investment, would be key factors in propping up the Thai economy.

Vinit stressed that Thailand had not entered “stagflation” — defined as an economic downturn combined with high inflation — because the investment base remained strong along with financial stability.

“For the next round of stimulus measures, the FPO is designing the ‘Thai Helps Thai Plus’ package and a new round of state welfare cards, with a focus on prudence and efficient use of the budget,” Vinit said.

He explained that every 100 billion baht in government spending can lift the GDP by 0.2 percentage point. But if it is a co-payment type measure, such as ‘Co-pay Plus’, then with only 40 billion baht of budget funds, the economic multiplier can be as high as 0.7 percentage point, because household contributions add extra funds into the system, generating multiple rounds of spending in comparison with the one-off cash handouts.

Adapting to structural economic changes

The Finance Ministry has acknowledged that traditional stimulus tools may be insufficient for the current structural changes in the economy. It is, therefore, preparing to propose tax deductions for rooftop solar installations, alongside coordination with financial institutions to offer special interest rates for clean energy investment, in order to turn the energy crisis into an opportunity to upgrade the country’s infrastructure.

Warotai Kosolpisitkul, an advisor on international economics, added that true stagflation is historically very rare, and he believes every crisis brings new dynamics and continuous adaptation by Thai businesses.

The Cabinet on April 28 approved a 20-billion-baht loan to boost liquidity in the Oil Fuel Fund, after its deficit widened to 62 billion baht due to previous energy price subsidies.

Thai households have been entangled in high debt, and rising prices may worsen the situation. “More money will flow out of household pockets as the prices of goods and services increase,” warned Assoc Prof Yuthana Sethapramote, an economist at National Institute of Development Administration University.

“The best option for the government is to shore up the economy in the short term and hope the Middle East conflict ends sooner rather than later,” he said. Yuthana was optimistic that the conflict, which has led to the closure of the Strait of Hormuz, a vital channel for oil and gas flow, would end in the next couple of months and that the Thai economy could still grow. He warned that a prolonged conflict could plunge the Thai economy into a recession.

The oil crisis has adversely affected the global economy, but Thailand, which relies heavily on oil and gas imports from the Middle East, is much more vulnerable. Kongkiat Opaswongkarn, chief executive officer at Asia Plus Group Holdings, said that he backs the government’s plan for mega-investment projects to draw funds into the country.