BANGKOK: Thailand’s economy is confronting a substantial “shock” as global volatility from the unresolved Middle East war feeds through to slower growth and rising inflation.
It is a situation driven largely by higher energy costs.
Policymakers and analysts warn that the impact is becoming increasingly uneven, hitting vulnerable groups and smaller businesses hardest as income, liquidity and competitiveness constraints deepen.
Bank of Thailand (BoT) governor Vitai Ratanakorn said the economy is likely to slow in line with earlier assessments, with the most visible effect being higher inflation.
Businesses and households are already feeling pressure from rising costs, while debt burdens and liquidity strains are becoming more apparent.
He emphasised that this round of impact is “uneven”, with import dependent economies suffering more than exporters.
Oil importing countries, such as Thailand, face the sharpest blow as energy prices remain elevated, he said.
The distributional impact is widening. Lower income households, whose spending is dominated by essentials such as food and transport, are absorbing the most severe hit.
Diesel prices, for example, have risen from 30 baht to 40 baht per litre, pushing up the cost of goods and daily living.
Middle income groups are also feeling the squeeze, while higher income households still have buffers to cope.
A similar pattern is emerging in the business sector. Large firms have stronger liquidity, financial reserves and capacity to adjust, while small and medium enterprises (SMEs) face tighter margins, weaker competitiveness and limited innovation.
These smaller firms are more exposed to rising costs and slowing demand, making them particularly vulnerable.
The unevenness is also visible across industries: transport and tourism are heavily affected due to energy and economic sensitivity, while other sectors face milder pressure.
Vitai said the economy will inevitably slow and will require government stimulus to provide support.
Inflation is expected to rise to around 3% to 4% before easing later in the year, though oil prices are likely to remain above pre‑crisis levels even after the conflict ends.
Inflation should begin to moderate once the economy enters a high‑base period in March and April 2027.
He noted that stimulus measures must be carefully designed.
Cash transfers can deliver immediate support but fade quickly and risk creating a high base that drags on gross domestic product (GDP) the following year.
Investment‑focused measures, while slower to take effect, generate more durable growth.
The government will need to weigh these trade‑offs when deciding how to deploy fiscal resources.
On debt, the BoT is closely monitoring conditions and has instructed financial institutions to accelerate assistance for borrowers through restructuring, interest‑burden reductions and other targeted measures.
Tools such as SMEs Credit Boost and SMEs Secure+ are being used to prevent a rise in bad loans.
Vitai stressed that the situation is not as severe as during the Covid‑19 lockdowns, when incomes collapsed across multiple sectors.
Large‑scale interventions are not yet necessary, but the BoT is preparing contingency measures, including asset transfers to settle debt and asset management schemes used during the pandemic.
Vitai described the current situation as a “supply‑side shock”, meaning fiscal policy is the most effective response.
Monetary policy, being broad and non‑targeted, cannot directly support the most affected groups.
Assistance should therefore focus on low income households, SMEs, small operators and energy‑intensive sectors.
Monetary policy will continue to maintain price stability while targeted measures provide more precise support.
Regarding the government’s plan to issue an emergency decree to borrow 400 billion baht, the BoT believes priority should be given to investment rather than short‑term relief payments.
While relief can stabilise consumption temporarily, investment generates sustained growth and avoids creating a base effect that weakens GDP in the following year.
Vitai also highlighted that Thailand’s financial stability toolkit has expanded significantly.
The BoT no longer relies solely on interest-rate policy but uses a combination of the policy rate and targeted measures that will take effect over the next three to six months, including SME‑focused programmes.
Another available tool is adjusting contributions to the Financial Institutions Development Fund, which can immediately lower loan interest costs.
The BoT stands ready to use this lever if needed, said Vitai.
For now, interest rates should not be cut because inflation is rising temporarily.
However, if the economy faces serious challenges in 2026 and 2027, decisions will be data‑dependent.
Both monetary and targeted policies are prepared to respond quickly should conditions deteriorate. he added.
Thailand’s policy rate is low at 1%, the third lowest in the world after Switzerland and Japan.
Monetary policy or policy rates among central banks worldwide are being assessed in the same direction: “Wait and see”, meaning delaying to assess the situation or holding interest rates, and “look through”, meaning looking past temporary volatility. — The Nation/ANN
