Bangkok: KKP Research has lowered its forecast for Thailand's economic growth in 2026 to 1.3%, while raising its inflation forecast to 3.0% due to the prolonged conflict in the Middle East. The report points to the risk of stagflation from soaring oil prices, which could pressure tourism, exports, purchasing power, and fiscal stability. It also anticipates the Monetary Policy Committee (MPC) will cut interest rates at the end of the year to support the economy.

According to Thai News Agency, KKP Research, by Kiatnakin Phatra Financial Group, has revised down its 2026 Thailand economic growth forecast to 1.3% from the previous 1.8%, based on the assumption of an average crude oil price of $92.50 per barrel. The research also increased its inflation forecast to 3.0%, citing the prolonged conflict in the Middle East as a factor pressuring the global economy and increasing the risk of stagflation in Thailand.

KKP Research states that Thailand is highly vulnerable due to its net energy importation and dependence on the tourism sector. They assessed the impact of the war in three scenarios: a base case where the war is expected to resolve in the next 2-3 weeks, with an average Brent crude oil price of $92.50/barrel for 2026 before falling below $70/barrel by the end of 2027; a rapid resolution at $77.50/barrel, which is less likely and would have a minimal impact on the Thai economy, similar to previous estimates; and a severe scenario where oil prices could surge to $130-150/barrel, risking a Thai economic recession.

Furthermore, tensions in the Middle East could impact global supply chains, leading to shortages of fertilizers, petrochemicals, and helium, all affecting agriculture, industry, and technology production.

Regarding the impact on the Thai economy, there are four main channels: a slowdown in the tourism sector, with an expected decrease in foreign tourist arrivals to 31.2 million in 2026; exports facing pressure from rising costs and weak global demand; contracting household purchasing power due to higher energy prices; and the risk of public debt to GDP exceeding the 70% ceiling due to fiscal policy constraints.

However, it is estimated that the Monetary Policy Committee (MPC) will not raise interest rates while oil prices are at high levels and is likely to lower the policy interest rate to 0.75% at its final meeting in 2026 to support weak purchasing power, before raising it back to 1.0% in 2027.

However, if the situation worsens beyond expectations, with oil prices rising sharply, it could lead to a recession in the Thai economy, along with facing increased risks of tighter energy and commodity supply in the coming period.