Thai Economy Faces Severe Slump in 2026 as China Overcapacity and Floods Bite

 

Thailand’s powerful business committee has issued a stark warning that the nation’s economy is set for a severe slowdown in 2026, with growth projected to fall as low as 1.6%.

 

The Joint Standing Committee on Commerce, Industry and Banking (JSCCIB) on Wednesday attributed the bleak outlook to two primary factors: escalating competition from China’s industrial overcapacity and the crippling financial toll of the recent Southern floods.

 

Kriengkrai Thiennukul, chairman of the Federation of Thai Industries (FTI), stated that the global economy is slowing, with China being a key drag.

 

Weak domestic demand is forcing Beijing to rely heavily on exports, intensifying competitive pressures on Thai businesses, especially in manufacturing.

 

 

The JSCCIB confirmed that the catastrophic flooding in the Southern region caused widespread damage, with some areas facing a ‘Level 4’ public disaster comparable to the 2004 Tsunami.

 

The committee reported a loss of revenue between 20-30 billion baht (0.1% to 0.2% of GDP) in December 2025 alone, contributing to a weak 2.0% growth figure for the entire year.

 

The projected revenue loss for 2026 due to the ongoing impact is an estimated 90 billion baht.

 

“The Thai economy in 2026 is forecast to expand at a sluggish rate of 1.6% to 2.0%,” Kriengkrai said, noting further headwinds from uncertain US tax measures and increasing import competition.

 

In response, the JSCCIB is urging the government to immediately focus on two areas: rapid flood recovery and structural economic reform under the banner of ‘Reinvent Thailand’.

 

The committee is pushing for policies to bolster domestic industry, including the promotion of Local Content and ‘Made in Thailand’ products through government procurement and tax incentives—a move aligned with the Cabinet’s recently approved ‘Quick Big Win’ measures for SMEs.

 

The JSCCIB network has mobilised extensive relief efforts, including a 50 million baht donation from the Thai Bankers' Association to the Thai Red Cross and FTI's "The Bigger Helps the Smaller" programme to restore factories.

 

Furthermore, the committee welcomed a recent Cabinet decision to ease the financial burden on small businesses by replacing the flat 1,000 baht collateral requirement per foreign worker with a tiered collateral system, freeing up liquidity for small enterprises.

 

The business leaders also highlighted the need to upgrade the fight against corruption, proposing a framework focused on ‘systemic mechanisms’ rather than just public campaigns.

 

Key initiatives include a pledge that the private sector will refuse to pay illegal bribes and the expansion of the Collective Action Coalition Against Corruption (CAC).

 

 

 

Separately, JSCCIB expressed concern over the 7% appreciation of the Thai Baht over the past seven months—the second strongest in the region.

 

This strength is seen as detrimental to exports and tourism, costing Thai exports a nearly 10% competitive gap against regional rivals like Vietnam, where the dong has depreciated.

 

“It is puzzling that Vietnam can weaken its currency without violating US criteria, while the baht appreciates against a slowing economic trend. We urge the Bank of Thailand to address this,” the committee stated.

 

 

 

Addressing the escalating threat of climate-related events, Payong Srivanich, chairman of the Thai Bankers’ Association, acknowledged that frequent, severe disasters are now the ‘New Normal’.

 

Payong confirmed that banks are now treating natural disaster risk as a core concern, with the Bank of Thailand requiring commercial banks to conduct specific Stress Tests to assess resilience against future extreme events.

 

He warned that the 2026 GDP forecast of 1.5% to 1.8% remains uncertain until the full extent of the flood damage is incorporated.