Thailand faces deficit and baht risks despite S&P rating relief

Thailand is entering the second half of 2026 with a mixed economic signal: S&P Global Ratings has maintained the country’s sovereign rating at BBB+ with a stable outlook, but economists warn that pressure from oil prices, rising imports, fiscal deficits and global uncertainty could keep the current account and the baht under strain.

The concern has sharpened even after the United States and Iran signed a ceasefire agreement last week. Markets remain focused on the 60-day negotiation period, during which both sides must seek a final settlement, as well as the possible commercial reopening of the Strait of Hormuz.

Thailand has already seen its trade deficit widen, partly because global oil prices rose during the conflict. Economists say the short-term pressure could push the country into a temporary current-account deficit, while some warn that the longer-term risk is more structural if Thailand continues to import high-value technology without moving up the production chain.

Dr Burin Adulwattana, managing director and chief economist of Kasikorn Research Centre, said Thailand could face a more permanent current-account deficit if its production structure does not change.

He said one of the key risks is Thailand’s growing reliance on imported technology, particularly as investment in data centres expands. Much of the equipment and technology used in these projects is imported, while the value of Thailand’s exported goods remains lower than the value of what it brings in.

Although these imports are linked to investment, Burin warned that Thailand does not own much of the underlying technology. As a result, even large investment inflows may not generate as much benefit for the country as expected, especially if the main owners are foreign investors.

He said that if the government does not design appropriate tax and policy measures, Thailand’s resources could be used without the public receiving sufficient benefit.

Another structural concern is the decline in competitiveness in industries where Thailand was once strong, including auto parts. Burin said the sector is now under pressure as Thailand struggles to compete with countries such as China, increasing the country’s dependence on imports.

He warned that the shift in Thailand’s production structure could make the current-account deficit more persistent if the country fails to upgrade key products that matter to the modern economy. Without such adjustment, it may become harder for Thailand’s trade balance to return to a strong surplus.

However, other economists see the current pressure as temporary and very different from the chronic current-account deficit seen before the 1997 financial crisis.

Dr Amonthep Chawla, executive vice-president and head of the Research Office at CIMB Thai Bank, said the current-account issue is likely to be a short-term deficit caused mainly by higher oil prices.

He said a temporary deficit of this kind should not be a major concern, noting that in previous periods when oil prices were at similar levels, Thailand did not suffer a significant current-account deficit.

Amonthep said another reason the current account has turned negative is the sharp increase in imports linked to foreign direct investment. These include imports for data centres, electronics and electric-vehicle industries.

He said Thailand’s current situation is not the same as a chronic current-account deficit, where the country runs a prolonged deficit without any clear adjustment or solution.

Thailand experienced such a condition during the 1997 economic crisis, but Amonthep said the present situation does not yet show the same pattern. The current deficit is mainly driven by imports and large-scale investment projects.

Dr Phacharaphot Nuntramas, executive vice-president and chief economist at Krungthai Bank, also said Thailand’s current-account deficit should not be viewed as alarming.

He said Thailand’s major problem in recent years has not been a shortage of funds, but rather its reluctance to invest despite having accumulated savings.

In that context, a current-account deficit this year partly reflects an acceleration in imports of machinery and capital goods. These imports are not for excessive consumption, but are being used to build new production bases, factories and digital infrastructure, including data centres.

Phacharaphot said the current deficit is the result of investment decisions made over the past one to two years, which are now appearing in the form of capital-goods imports for factory construction and machinery installation in 2025.

At the same time, Thailand’s external position remains strong enough to support its sovereign credit profile.

Bank of Thailand Governor Vitai Ratanakorn said in a personal Facebook post that S&P Global Ratings had kept Thailand’s credit rating at BBB+ with a stable outlook in its latest review last week.

He said Thailand received the highest scores, or scores of one to two, in two of S&P’s six assessment categories: international financial position and monetary policy.

On the external front, S&P said Thailand’s strong external balance sheet and international liquidity would continue to support the country’s rating. The strengths come from high international reserves compared with low external debt, positive net foreign assets and a current account that remains in surplus, although the surplus has narrowed.

Vitai said Thailand’s current-account surplus this year may be only small because oil imports have increased sharply. He described this as a temporary factor, while noting that rising foreign direct investment is positive for the Thai economy in the long term, though it still needs close monitoring.

On monetary policy, S&P said the credibility of the Bank of Thailand’s monetary policy and its record of maintaining price stability are important supports for Thailand’s sovereign rating.

Vitai said this strength should be credited to past Bank of Thailand governors and teams across several eras, whose work had helped preserve the continuity and strength of monetary policy.

S&P assessed that Thailand’s economy would grow by 2% in 2026. It projected the current-account surplus at 2% of gross domestic product, while the government’s budget deficit is expected to remain high at 3.5% of GDP as fiscal policy continues to support the economy.

Vitai said the outlook still contains both downside and upside risks, including slower economic growth, a high fiscal deficit and inflation, which remains a key issue for the Bank of Thailand.

The central bank’s updated economic forecasts are expected to be released after this week’s Monetary Policy Committee meeting, with the overall view still broadly consistent with S&P’s assessment.

Currency strategists are also warning that the baht could move sharply in the second half of the year.

Roong Sanguanruang, senior vice-president of Global Markets Planning Division at Bank of Ayudhya, said Krungsri expects the baht to trade in a range of 31.80-33.50 per US dollar in the second half of 2026.

She said markets have already priced in some positive news from the ceasefire agreement and the possible return of commercial navigation through the Strait of Hormuz.

As a result, market attention is now shifting to the Federal Reserve’s policy-rate outlook. Roong said the latest Fed meeting showed a change in communication with markets and greater concern over inflation risks.

US economic data will therefore be closely watched. If the data show that inflation pressure is easing, the Fed may not need to raise interest rates, though bond markets are still likely to remain highly volatile.

On Thailand’s twin-deficit risk, Roong said the country’s current-account deficit was caused partly by the acceleration of oil imports for energy security, which pushed the current account deeply into deficit in April.

She said this was a temporary event. Thailand may either post a small current-account surplus or a slight deficit this year, but she does not see it as a chronic deficit.

Poon Panichpibool, capital-market strategist at Krungthai Global Markets, said the Middle East situation appears to be easing but remains highly uncertain. Oil prices, inflation and Fed interest-rate policy will be the key factors shaping market direction.

He outlined three possible scenarios for the baht.

In the base case, the situation eases, US inflation slows, peace talks proceed smoothly, the Strait of Hormuz remains open to shipping and crude oil stays below US$100 per barrel. US inflation would ease and the labour market would not be too tight, prompting markets to reduce expectations of Fed rate hikes.

Under this scenario, the dollar would weaken. Gold could rebound to US$4,800-4,900 per ounce by year-end, while the baht could gradually strengthen to 31.50-32.00 per dollar.

In the secondary scenario, the geopolitical situation eases but markets remain uncertain about the Fed’s rate path. If US economic data continue to raise concern that the Fed could raise interest rates once more towards the end of 2026, the dollar could remain steady or strengthen slightly.

Under this scenario, markets would also need to watch for possible yen intervention by Japan. Gold would face pressure and could move around US$4,100-4,200 per ounce at year-end, or fall below US$4,000 if the Fed raises rates twice. The baht would likely trade above 32.75 per dollar and could weaken to 33.00 if gold prices fall sharply.

In the worst-case scenario, the war becomes prolonged and more severe, pushing crude oil above US$100 per barrel. Major central banks would raise interest rates to fight inflation, while the dollar index could rise by 3-4%.

This would put heavy pressure on gold, which could fall below US$4,000 and test key support at US$3,500-3,600 per ounce. The baht would risk weakening beyond 33.00 and could move to 33.50-34.00 per dollar.

Taken together, the two assessments point to an economy that still retains important credit strengths but faces a more difficult policy challenge. Thailand’s external reserves, low external debt and credible monetary policy remain key buffers, but weaker growth, higher imports, fiscal deficits and currency volatility will test confidence in the months ahead.

For policymakers, the task is to manage short-term pressure without allowing temporary deficits to become structural weakness. For markets, the baht’s direction will depend less on domestic factors alone and more on the balance between oil prices, US inflation, Fed signals and whether the Middle East ceasefire can hold.