BOT says US–Venezuela conflict to add to Thailand’s economic woes

Geopolitical shock adds fresh uncertainty

The Bank of Thailand (BOT) on Wednesday warned that the escalating US–Venezuela conflict could worsen geopolitical tensions and add to Thailand’s existing economic headwinds, keeping growth below potential over the next two years.

The comments were made by Piti Disyatat, the BOT’s deputy governor for monetary stability.

Piti said the US operation involving Venezuela’s President Nicolás Maduro took place after the Monetary Policy Committee’s (MPC) latest meeting, meaning it was not incorporated into the committee’s latest assessment of Thailand’s 2026 outlook.

Trade and investment likely to slow

Piti said heightened uncertainty would weigh on trade and investment, forcing businesses to delay decisions. He added that an additional risk is the expected change of chair at the US Federal Reserve in the near future, which could influence interest-rate policy and add to global financial uncertainty.

“The US–Venezuela incident occurred after the Monetary Policy Committee (MPC) meeting, so we did not have a view on the matter,” he said.

He noted that the world was rattled last year by trade policy, this year by military developments that could drive geopolitical tensions, and could be shaken again from late this year into early next year by monetary policy shifts—each with significant impacts.

Thailand’s growth forecast: below potential for two years

Piti said Thailand’s economy is expected to expand below its potential over the next two years. Growth in 2026 is forecast at just 1.5%, with growth seen at only 2% looking further ahead, as the economy remains in a transition period facing both short-term cyclical pressures and longer-term structural constraints.

Exports losing steam as tech share lags peers

On external pressures that monetary policy cannot fix, Piti pointed to exports, which can no longer serve as the primary engine of growth as they once did. He said Thai exports benefit far less from the global expansion of technology products than regional competitors.

Technology goods account for only 17.2% of Thailand’s export value, compared with 73.8% for Taiwan and 53.5% for the Philippines. He added that Thai manufacturing is also facing intense competition from imports, particularly from China, whose share has continued to rise, alongside base effects from last year.

Tourism momentum slows; budget delays seen after election

Piti said foreign tourist arrivals to Thailand show signs of easing, driven by safety concerns and the impact of flooding, while competitors such as Japan and South Korea have seen tourism surge past pre-Covid levels.

He noted that Thailand’s tourism sector previously drew as many as 40 million foreign visitors. After Covid, it effectively restarted from zero before gradually rising to around 35–36 million—close to the previous peak—meaning the pace of growth has naturally slowed.

He also said this year’s election is expected to delay the fiscal 2027 budget process by one quarter, with the budget likely to be enacted in the first quarter of 2027. That would reduce the usual boost from government spending in the fourth quarter, weighing on consumption.

Debt, weak credit growth and limited policy space

On structural headwinds, Piti said Thailand’s public debt-to-GDP ratio is expected to keep rising—from 63.2% in 2024 to 65.1% in 2025—with projections showing public debt could peak at 69.8% in 2028, nearing the 70% ceiling.

Household debt remains high and is a key factor weighing on private consumption growth, which is expected to slow to 1.9% in 2026. While deleveraging has begun, he said progress remains difficult.

Bank lending has also continued to contract—especially to SMEs and retail borrowers—as financial institutions remain concerned about credit risk.

Piti said cutting the policy rate alone cannot solve structural problems or targeted issues around access to credit. The MPC has already lowered the policy rate to 1.25%, leaving limited policy space.

However, he stressed that limited space does not mean none at all: if uncertainty rises sharply and further support is needed, additional rate cuts could still be considered.