Thailand faces below-potential growth in 2026–2027, MPC minutes show
BOT MPC cuts policy rate to 1.25% and warns of a sharper slowdown, baht strength, weak demand and below-potential growth into 2026–2027.
- Thailand's Monetary Policy Committee (MPC) forecasts the country's economy will grow below its potential, with GDP projected to expand by 1.5% in 2026 and 2.3% in 2027.
- The slowdown is driven by weakening domestic demand, including a slowdown in private consumption due to slow income recovery and high household debt, as well as cautious private investment.
- External pressures include US tariff measures on exports and a strong baht, which has appreciated by 8% against the US dollar, hurting exporters' competitiveness and reducing tourism earnings.
- The MPC assesses that the economy faces a prolonged cyclical downturn that is being deepened by underlying structural constraints, increasing overall economic risks.
The Bank of Thailand’s Monetary Policy Committee (MPC) has issued a stark warning about Thailand’s economic outlook, according to the minutes of Meeting No. 6/2568, held on December 12 and 17, 2025.
The committee unanimously voted to cut the policy interest rate by 0.25 percentage points, from 1.50% to 1.25%, with immediate effect, in response to a clearly slowing economy and rising risks on multiple fronts.
Policy rate cut as risks mount
The MPC said the rate cut was aimed at supporting the economy as downside risks increase, reflecting weaker momentum in both domestic activity and external demand.
2025 growth seen at 2.2% as the second half slows
The MPC expects Thailand’s economy to expand by 2.2% in 2025, but noted that activity in the second half of the year began to show signs of slowing. It cited temporary production halts in key industries, including petrochemicals and automotive manufacturing, as firms adjusted operations to improve efficiency.
Tourism and flooding weigh on GDP into early 2026
The economy has also been affected by a decline in Chinese tourist arrivals and flooding in the South. The MPC expects the floods to reduce GDP by 0.1–0.2%, with knock-on effects extending into early 2026.
2026–2027 outlook: growth below potential
For 2026–2027, the MPC expects Thailand’s economy to grow below its potential, with GDP projected to expand by 1.5% and 2.3%, respectively.
The main drag is a slowdown in private consumption in line with income trends, with middle- to high-income groups becoming more cautious about spending on non-essential goods.
Exports face US tariff pressure despite electronics strength
The MPC said exports remain under pressure from US tariff measures, although electronics exports continue to expand, supported by demand linked to data centres.
Structural constraints deepen the cyclical downturn
The committee assessed that Thailand is facing a more prolonged cyclical downswing alongside structural constraints, increasing economic risks in a meaningful way.
Baht appreciation hits exporters and tourism income
A key concern was the appreciation of the baht. Since the start of 2025, the baht has strengthened by around 8% against the US dollar, directly undermining exporters’ price competitiveness—especially in agriculture, processed agricultural products and textiles—and reducing tourism earnings when converted into baht.
Gold-trader FX activity linked to baht volatility
On the sources of currency volatility, the MPC found that forward foreign-exchange transactions by gold traders accounted for as much as 20% at certain times.
The Bank of Thailand has instructed financial institutions to tighten scrutiny of evidence of physical gold trading and is preparing to revise rules requiring large gold traders to report transaction data to improve monitoring.
Domestic demand weakens as debt and uncertainty bite
Domestic demand is weakening, with private consumption squeezed by slow income recovery and still-high household debt.
Private investment is also under pressure from low growth prospects and rising uncertainty. Flooding and tensions along the Thailand–Cambodia border have further weighed on confidence in both consumption and investment.
SMEs under strain as credit contracts
Uneven growth remains a concern, with wealth concentrated among large businesses while SMEs and parts of the wider manufacturing sector remain fragile.
Credit in the system continues to contract as financial institutions stay cautious about lending to higher-risk borrowers amid elevated levels of non-performing loans (NPLs).
Targeted measures to begin in January 2026
The MPC said monetary policy alone is not sufficient and must be complemented by targeted financial measures. Two key programmes are set to begin in January 2026:
- The “Close Debt Fast, Move Forward” programme, aimed at addressing unsecured debts of less than 100,000 baht.
- The “SMEs Credit Boost” programme, a credit-guarantee mechanism to support entrepreneurs in targeted industries.
Low inflation and deflation risks remain on the radar
Inflation remains below target, with headline inflation projected at -0.1% in 2025, gradually rising to 1.0% in 2027. The main drivers are lower energy prices in line with global oil prices and government subsidy measures.
While the MPC assessed overall deflation risks as low, it said the situation requires close monitoring amid weakening domestic purchasing power and growth that remains below potential.
