KKP cuts GDP forecast, warns Thailand faces recession risk

KKP cuts 2026 GDP outlook

KKP Research, the economic research unit of Kiatnakin Phatra Financial Group, has cut its base-case forecast for Thailand’s 2026 GDP growth to 1.3% from 1.8% and raised its headline inflation forecast to 3.0% from 0.2%, warning that a prolonged oil shock could leave the country exposed to recession risks.

The research house said Thailand now faces a more dangerous mix of slowing growth and rising prices, with the economy vulnerable through four channels at the same time. 

Three scenarios for oil and growth

KKP Research said its base case assumes the war will ease within the next two to three weeks, with Brent crude averaging US$92.5 a barrel this year before falling below US$70 by the end of 2027.

In a quicker de-escalation scenario, which it sees as less likely, Brent would average US$77.5 a barrel and the impact on Thailand would be limited. In the severe case, however, average oil prices could reach US$130 a barrel and spike above US$150, sharply slowing the Thai economy and raising the risk of recession. 

Thailand exposed on more than oil alone

The report said Thailand’s vulnerability is not confined to crude oil and LNG imports. Disruption to Middle East shipping routes could also worsen shortages of fertiliser, affecting farm output, as well as petrochemical feedstocks, which would hit the plastics and textile sectors.

It also warned of risks to helium supply, an important input in global semiconductor production. 

Four channels of pressure

KKP Research said the threat to Thailand is more severe because the economy is no longer cushioned by the post-pandemic pent-up demand seen in 2022, while household finances are now far weaker.

It said the first hit would come from tourism, cutting its 2026 foreign arrivals forecast to 31.2 million from 35.1 million because of higher travel costs and weaker confidence.

The second would come from exports, which face rising freight costs, weaker demand in major markets including the United States, China, Europe and Japan, and risks linked to Section 301 investigations in the US. 

The third channel is household purchasing power. KKP Research said energy accounts for 14% of the consumer basket, meaning higher prices, especially from diesel price liberalisation, would weigh heavily on spending, particularly among low-income groups.

The fourth is public debt. It warned that weaker GDP growth and additional subsidies to shield consumers could push Thailand’s public debt-to-GDP ratio through the 70% ceiling sooner than expected, leaving the government with limited fiscal room to respond. 

Why this shock could be worse than in 2022

According to KKP Research, the current backdrop differs significantly from the inflation surge seen in 2022. Back then, demand was still supported by the rebound after Covid-19.

This time, the report said, households are entering the shock with weaker balance sheets, while Thailand remains highly dependent on imported energy and tourism income.

That combination makes the economy more exposed than many of its regional peers if oil prices stay elevated for longer than expected. 

Rate cuts seen as more likely than hikes

Despite the stagflation risk, KKP Research said the Bank of Thailand’s Monetary Policy Committee is likely to lean towards easing rather than tightening, because Thai inflation has only recently emerged from negative territory and the bigger concern now is economic weakness rather than a sustained inflation spiral.

It expects the MPC to hold rates while oil prices remain high, with scope for a further cut to 0.75% at the final meeting of 2026 to support fragile purchasing power, before lifting the rate back to 1.0% in 2027.