Thailand's Economy Set to Slow Further in 2026, UTCC Warns

University's latest forecast points to 1.6% growth next year as export boom fades and domestic challenges mount.

 

Thailand faces a challenging economic path ahead, with growth expected to decelerate to 1.6% in 2026 following a disappointing 1.9% expansion this year, according to the University of the Thai Chamber of Commerce's latest economic forecast.

 

The downward revision for 2025, from an earlier projection of 2.0%, comes as severe flooding in the south, declining tourism revenue, and contracting government spending offset a temporary surge in exports, the university's Centre for Economic and Business Forecasting revealed.

 

"We estimate that the flooding impact in Hat Yai, Songkhla province, resulted in economic damage of no less than 40 billion baht over one month, reducing GDP by approximately 0.22%," said Wichian Kaeosombat, assistant director of the Centre for Economic and Business Forecasting.

 

The 2025 picture reveals a fragile economy where an exceptional 11.1% growth in goods exports — largely driven by companies rushing shipments to the United States ahead of anticipated trade restrictions — was almost entirely negated by surging imports, disappointing tourism receipts, and acute domestic shocks.

 

International tourist arrivals are now expected to reach 32.8 million this year, down from an initial forecast of 33 million, with per capita spending also declining as visitors become more budget-conscious.

 

Adding to the pressure, government consumption contracted nearly 4% in the third quarter, creating an unexpected drag on growth.

 

 

Shifting Growth Engines

Looking ahead to 2026, the economy will need to rely more heavily on tourism recovery and domestic demand, as the unsustainable export boom of 2025 fades.

 

The forecast anticipates 35 million international visitors next year, alongside an 18.2% increase in government investment spending and election-related expenditure of 50-60 billion baht in the first quarter.

 

However, these positive drivers face substantial headwinds. US trade tariffs and stricter "local content" rules pose severe threats to exports, whilst elevated household debt — projected at 86.4% of GDP in 2025 — is expected to constrain consumption and trigger a credit crunch.

 

"The overall economy next year shows a clear trend of deceleration due to both internal and external pressures," said Thanavath Phonvichai, president of the University of the Thai Chamber of Commerce and chairman of the Centre for Economic and Business Forecasting's advisory board. "Internal factors include political issues, as we anticipate that the election period and government formation will delay budget disbursement, whilst household debt and private sector investment will decline. Tourism has yet to show a strong recovery."

 

 

Quarterly Volatility Expected

The university's quarterly breakdown reveals significant volatility throughout 2026.

 

Growth is forecast to slow from 1.7% year-on-year in the first quarter to 1.5% in the second quarter during the post-election transition period.

 

The third quarter should see the year's strongest acceleration at 2.0%, benefiting from a low base effect and accelerated budget disbursement before the fiscal year closes.

 

However, the fourth quarter is projected to slow sharply to just 1.2% as the economy feels the full impact of a delayed fiscal 2027 budget.

 

The baseline scenario assumes a three-month delay in budget passage, removing an estimated 75.3 billion baht from the economy and reducing GDP by 0.39%.

 

 

 

Multiple Risk Scenarios

The university has mapped out five potential scenarios for 2026, with the baseline 1.6% growth forecast carrying a 55% likelihood.

 

However, the outlook is skewed to the downside, with a one-in-four probability of growth falling to 1.3% or lower.

 

A critical external risk comes from US trade policy. The baseline forecast already incorporates a nine-month impact from a proposed 19% tariff and 50% local content requirement beginning in April 2026.

 

If these rules were applied for a full year, exports could decline by 50.3 billion US dollars, shaving 0.27% off GDP. Stricter requirements of 60% local content could reduce GDP by 0.53%.

 

Geopolitical tensions with Cambodia present another significant threat.

 

The baseline scenario assumes a full-year closure of all land border crossings, projected to reduce Thailand's export value by 141.8 billion baht and directly impact GDP by 0.74%.

 

On the credit front, the baseline assumes zero growth in household credit as financial institutions tighten lending standards in response to rising non-performing loans.

 

A severe credit crunch leading to a 3% contraction in household credit could reduce GDP by 0.51%.

 

 

 

Strategic Imperatives

The university warns that Thailand's 2025 performance was overly reliant on a temporary, front-loaded export boom that cannot be repeated.

 

The report calls for proactive trade diplomacy with the United States, urgent efforts to de-escalate regional tensions with Cambodia, and measures to facilitate orderly household debt restructuring.

 

It also recommends a strategic shift in tourism policy away from maximising arrival numbers towards maximising revenue per tourist by targeting higher-spending demographics and developing premium tourism products.

 

The analysis concludes that whilst the baseline forecast suggests modest growth, significant vulnerabilities in both external trade relationships and domestic economic fundamentals require careful navigation by policymakers and business leaders alike.