World Bank cuts Thailand growth to 1.3%, flags energy vulnerability in region

The World Bank has downgraded Thailand’s economic growth forecast for 2026 to 1.3%, warning that the country is among the most vulnerable in Southeast Asia to the ongoing global energy crisis.

Speaking at the launch of the latest East Asia and the Pacific (EAP) Economic Update on April 8, Aaditya Mattoo, Chief Economist of the World Bank’s East Asia and Pacific region, identified Thailand, Laos, Cambodia and Mongolia as the most exposed economies in the current energy shock.

These countries, he said, rely heavily on energy imports at levels more than double those of the Philippines, making them particularly susceptible to rising global fuel prices.

This vulnerability is expected to intensify inflationary pressures and push up living costs, especially in economies already burdened by high public debt and limited foreign reserves.

Mattoo warned that if global oil prices remain around 50% above normal levels for a prolonged period, wages across the Asia-Pacific region could fall by 3–4%, delivering a significant economic shock.

“Based on our calculations, if oil prices stay roughly 50% above normal, which is not implausible, wages in the region could decline by 3–4% from their baseline levels,” he said.

When asked whether a rapid end to geopolitical tensions could alter the outlook, Mattoo cautioned that the economic damage is likely to persist even if conflicts ease.

He noted that surging fuel prices and disruptions to oil and gas production capacity have already created long-lasting effects, rather than being a temporary shock.

Although a ceasefire agreement reached on the morning of April 8 (Thailand time) has raised hopes, it has not eliminated broader uncertainty in global markets.

Against this backdrop, regional economic growth is projected to slow to 4.2% in 2026, down from 5.0% in 2025. The slowdown reflects compounded pressures from the energy crisis linked to Middle East tensions, alongside heightened trade protectionism, global policy uncertainty and domestic structural challenges.

To mitigate the impact, the World Bank recommends that governments strike a careful balance between short-term relief and long-term reform, supporting vulnerable groups and small businesses while pushing ahead with structural changes to drive future growth.

Lessons from Thailand’s response during the Covid-19 pandemic highlight the importance of strong digital infrastructure, Mattoo said. Countries with robust digital registries, such as Thailand, were able to deliver targeted assistance more efficiently.

In contrast, untargeted support measures tend to strain public finances, increase debt burdens and push up interest rates, ultimately undermining long-term economic growth.

On monetary policy, the region is now facing what the World Bank describes as a “double menace”, rising inflation combined with slowing growth.

If inflationary pressures are driven mainly by temporary supply-side shocks, central banks may be able to hold policy steady. However, if inflation expectations become entrenched and start feeding into wages and prices, policymakers could face a difficult trade-off between tightening policy to curb inflation or maintaining accommodative conditions to support growth.

The report also found that countries with clear fiscal rules, credible inflation-targeting frameworks and strong institutional structures are better positioned to absorb economic shocks and limit negative impacts.

Mattoo added that crises can serve as a catalyst for long-overdue structural reforms, particularly in sectors that remain heavily protected, such as services.

He pointed to Vietnam as an example of a country that has begun liberalising its service sector, helping to boost productivity across both services and manufacturing.

Sustainable recovery, he suggested, does not always require large-scale infrastructure investment. Removing policy barriers can be an equally powerful starting point for reform.

For Thailand, the World Bank highlighted persistent structural challenges, noting that the economy has been growing at a modest pace of just 1–2% annually in recent years.

This sluggish performance is largely attributed to a lack of meaningful structural reform, including restrictions on foreign investment in the financial sector, seen as a key obstacle to broader industrial development.

In its April 2026 EAP Economic Update, the World Bank revised down Thailand’s GDP growth forecast to 1.3%, from 1.8% projected in October 2025.

This places Thailand as the slowest-growing economy among the Southeast Asian countries covered in the report.