Bangkok: KKP Research, part of the Kiatnakin Phatra Financial Group, has adjusted its forecast for Thailand's economic growth in 2026, now projecting a GDP increase of 2.1%, up from the previous estimate of 1.9%. This revision is attributed to a resolution in the Middle East conflict and an increased demand for artificial intelligence (AI) technologies.
According to Thai News Agency, the recalibration comes in the wake of a ceasefire agreement between the United States and Iran, intended to facilitate nuclear negotiations until at least August. Despite lingering uncertainties, the immediate effect has been a decrease in oil prices, which are now expected to average $85 per barrel in 2026, down from a prior forecast of $92.5. Additionally, the growing global private sector investment in AI is anticipated to bolster economic growth in the latter half of the year.
KKP Research outlines three primary channels through which these developments will positively impact the Thai economy:
1. Tourism Sector Recovery: The easing of tensions in the Middle East, a pivotal global aviation hub, has led to a more optimistic forecast for international tourists visiting Thailand, now expected to reach 32.7 million in 2026. Although this figure still represents a slight contraction compared to 2025, tourism revenue is projected to increase by 1.4% to 1.56 trillion baht. By 2027, tourist numbers are anticipated to climb to 34.9 million.
2. Lower Oil Prices and Cost of Living: While reduced oil prices have lightened financial strains on households and businesses, the effect on private consumption remains muted due to unresolved household debt and stringent lending conditions. The domestic retail fuel prices are unlikely to match the global decline, as approximately 57 billion baht is needed to replenish the Fuel Fund to address existing debt, keeping diesel prices stable at 32-33 baht per liter. The Fuel Fund's debt is expected to be fully settled by early 2028.
3. AI Demand Boosting Exports: The surge in AI investment is positively affecting Thai exports, especially in the technology sector, including hard disk drives, computers, and electronic components. However, traditional industries like automotive and petrochemicals face ongoing competitiveness challenges, limiting overall industrial production growth.
In addition to these factors, structural pressures and interest rate trends are also influential. Despite reduced oil import costs, the current account is projected to remain in deficit in 2026 due to factors such as service sector income not rebounding to pre-pandemic levels and increased capital goods imports driven by AI investments.
The average headline inflation rate for 2026 is now expected to decrease to 2.4%, down from an earlier forecast of 3.0%, owing to lower energy prices. The Monetary Policy Committee is likely to maintain the policy interest rate at 1.00% over the next year, with potential rate hikes considered only if inflation exceeds expectations or if the interest rate gap with major central banks widens. Conversely, an interest rate cut might be contemplated in late 2027 if domestic economic conditions deteriorate, global bond yields peak, and regional currency pressures ease.
The recent decline in oil prices is seen more as a buffer against further economic slowdown rather than a significant growth catalyst. Thailand continues to grapple with structural challenges, including underutilization of industrial competitiveness from AI investments, household debt burdens, and demographic shifts.