Mitihoon – SCB EIC has revised down Thai economic growth forecast in 2026 to 1.4% (from 1.8%), reflecting the impact of the Middle East war, which has led to a rapid increase in energy and commodity prices. Headline inflation is expected to accelerate significantly above the BOT’s target range, averaging 3.2% for the year.
Domestic spending is projected to slow, particularly private consumption, which is likely to be constrained by weakening household purchasing power and declining consumer confidence amid rising energy and food prices, as well as a contraction in real income. Meanwhile, the business sector will face mounting pressure from higher costs and narrowing profit margins, prompting firms to delay investment due to heightened uncertainty.
Macroeconomic stability is also expected to become more fragile, reflecting increasing risks of a current account deficit, capital outflows, and a widening fiscal deficit, resulting in a “triple deficits” scenario.
The escalation of the Middle East war into a “Dual crisis” scenario, under the baseline case, is expected to persist for around two months.
The escalation of the war in the Middle East has significantly disrupted oil and gas shipments through the Strait of Hormuz, which accounts for around 20% of global supply, resulting in a sharp surge in energy prices. Meanwhile, attacks on energy infrastructure in the region have heightened market concerns over the risk of prolonged disruptions to energy supply, which may require an extended period to recover. At the same time, countries worldwide are likely to accelerate efforts to secure additional energy sources to offset declining reserve levels. Such supply- and demand-side pressures will prevent global energy prices from declining quickly, even after the war ends.
SCB EIC assesses three scenarios for the Middle East crisis:
- Baseline scenario: The conflict is expected to end within two months, with average Brent crude prices in 2026 projected at USD 85 per barrel.
- Adverse scenario: The conflict could be prolonged for four months, accompanied by significant damage to energy production facilities and infrastructure. In this case, average Brent crude prices in 2026 are projected at USD 105 per barrel.
- Severe scenario: The conflict lasts more than four months and spreads across the region, with more Middle Eastern countries becoming involved and major damage to energy facilities and infrastructure. Under this scenario, average Brent crude prices in 2026 could rise to USD 120 per barrel.
In addition to causing a sharp rise in global energy prices, the conflict is also expected to increase both the cost and volatility of land, maritime, and air transport. As a result, this energy crisis could have broader effects than previous episodes, evolving into a “two-sided crisis” driven by both higher energy prices and shortages of upstream inputs for key industries such as plastic resins, fertilisers, pharmaceuticals, and metals.
Thailand’s economy could expand by only 1.4%, reflecting its high dependence on energy imports, low energy efficiency, and pre-existing structural fragilities in the economy.
SCB EIC assesses that the Thai economy faces high risks from accelerating energy prices, given Thailand’s substantial net imports of oil and natural gas—equivalent to around 8% of GDP—together with the relatively high share of energy in the inflation basket at approximately 12–13%, and persistently low energy efficiency. The impact of the war is therefore expected to push the Thai economy into stagflation, characterised by slowing growth alongside rising inflation, and could further undermine macroeconomic stability through widening deficits across three key dimensions: the current account deficit, capital account deficit, and fiscal deficit.
The main transmission channels of these impacts on the Thai economy are as follows:
- External sector: The trade sector will be adversely affected by a deterioration in terms of trade (the ratio of export prices to import prices). Import values are expected to accelerate significantly due to sharply higher energy import prices, while exports will be constrained by a weaker-than-expected global economic outlook and potential supply disruptions. As a result, the trade balance is projected to deteriorate markedly, with the current account likely to return to a deficit.
- Tourism sector: The overall number of international tourist arrivals to Thailand is expected to slow, reflecting a likely reduction in flight frequencies, rising travel costs in line with accelerating oil prices, and heightened concerns among tourists regarding the global economic outlook. Early signs of declining arrivals from the Middle East and Europe have already emerged, although this trend will be partly offset by continued support from high-potential growth markets such as China and India. Overall, SCB EIC has revised down its forecast for foreign tourist arrivals this year from 1 million to 33.2 million.
- Private consumption: Private consumption is expected to slow in response to rising living costs in line with higher global energy prices, further weighing on the recovery of household spending, which continues to face persistent economic scarring. These include fragile labour market, slow household income growth, and elevated household debt burdens.
- Business sector: Businesses will face higher production costs and shortages of raw materials, disrupting supply chains and exerting downward pressure on profit margins. Heightened uncertainty and higher costs are also expected to lead some firms to delay new investment.
- Financial markets: Financial markets are expected to experience heightened volatility, with capital outflows exerting rapid depreciation pressure on the baht and contributing to a larger capital account deficit. In this context, the BOT may need to intervene in the FX market through the use of international reserves to prevent excessively rapid baht depreciation.
Amid a prolonged war scenario, SCB EIC assesses that headline inflation this year under the base scenario is likely to rise above the BOT’s target range to 3.2%, up from the previous projection of around 0%. Inflationary pressures are expected to emerge initially from the energy and logistics components, before gradually broadening to goods affected by shortages of production inputs, packaging materials, and general consumer products.
Nevertheless, forthcoming government measures—particularly the Oil Fuel Fund mechanism, which is likely to require government guarantees for debt repayment under a higher borrowing ceiling—together with other support measures, will help cushion domestic impacts to some extent. However, policy support will be more limited than in the past due to Thailand’s public debt approaching the 70% ceiling, prompting authorities to remain cautious about sovereign credit rating risks. In addition, tax revenue collection may be adversely affected by the weaker economic outlook, which will further widen Thailand’s fiscal deficit.
Monetary policy faces increasing challenges from stagflation pressures, as slowing economic growth coincides with rising inflation. At the same time, energy price measures should avoid broad-based price subsidies or blanket price controls. Instead, policy should prioritise more targeted interventions and support gradual adjustment by consumers to higher energy costs.
The MPC is likely to maintain the policy rate at 1% this year. SCB EIC assesses that the MPC will not raise the policy rate in response to higher inflation, as inflationary pressures are expected to be driven primarily by supply-side factors. In addition, businesses may face limited ability to pass on higher costs to consumers amid still-weak demand conditions. A rate hike could therefore further weigh on Thailand’s already subdued growth outlook and exacerbate existing vulnerabilities stemming from elevated household and SME debt burdens.
At the same time, a policy rate cut while inflation is expected to exceed the monetary policy target range could raise concerns regarding the BOT’s commitment to the inflation-targeting framework and may contribute to more rapid baht depreciation, thereby adding further inflationary pressures. Moreover, the effectiveness of additional rate cuts in supporting economic activity would likely be limited, given the already low level of interest rates and heightened economic uncertainty. The MPC is therefore expected to preserve remaining policy space for use when necessary and when there is greater clarity regarding the outlook for growth and inflation.
Nevertheless, the MPC may consider one additional rate cut later this year if the impact on GDP turns out to be significantly more severe than currently assessed. In parallel, the BOT intends to deploy targeted measures to enhance the effectiveness of monetary policy transmission, including debt restructuring measures, soft loan programs, and credit guarantee schemes.
A policy response should shift from blanket support to the 3T framework: Targeted, Temporary, and Transform.
Prolonged blanket energy price subsidies at artificially low levels would impose a substantial fiscal burden, exacerbate inequality—since higher-income households typically consume more energy than lower-income households—and weaken incentives for energy conservation. Such measures would also contribute to a marked deterioration in the trade balance and increase the risk of a sharp and rapid adjustment in energy prices later on, which could in turn trigger an abrupt economic slowdown.
The government should adopt the 3T framework—Targeted, Temporary, and Transform—to manage short-term risks while strengthening long-term resilience, as follows:
1) Targeted: Provide support to the most severely affected groups through targeted subsidy measures for low-income households, farmers, and public transport operators, in order to mitigate hardship more effectively and precisely.
2) Temporary: Manage energy prices under a managed float approach by allowing prices to adjust gradually in line with market conditions. This would give consumers time to adapt while reducing fiscal risks associated with prolonged price distortions.
3) Transform: Use the crisis as an opportunity to strengthen energy security by incentivizing private sector investment in renewable energy and improving energy efficiency. These measures would help stimulate the economy in the short term while enhancing the long-term stability of the energy system.
The global economy is expected to slow as a result of the war, while heightened inflationary pressures are likely to prompt the Fed to postpone rate cuts until late this year.
SCB EIC assesses that, under the base scenario, global economic growth in 2026 will slow from 2.7%YoY to 2.5%YoY, reflecting the impact of the war, which has raised production costs and caused shortages of key manufacturing inputs, thereby exerting upward pressure on global inflation. Economies with high dependence on energy imports, particularly in Asia, are expected to be more severely affected.
On monetary policy, major central banks are likely to adopt a wait-and-see stance amid heightened uncertainty. SCB EIC expects the Fed to postpone its rate cuts to Q4, with only one 25-bps cut anticipated this year, given the likelihood of rising inflationary pressures.
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