BOT forecasts 2.3% growth but warns investment, debt and inequality threaten Thailand’s economy

BOT warns weak investment is eroding Thailand’s growth

Thailand’s economy is no longer capable of delivering the rapid expansion seen in previous decades, as ageing, weak investment and limited technological upgrading continue to erode the country’s growth potential, Bank of Thailand Governor Vitai Ratanakorn has warned.

Speaking at the Bank of Thailand Southern Region Office’s 2026 annual seminar, titled “How Southern Businesses Can Adapt in an Uncertain World”, Vitai said annual economic growth had fallen from about 7% in the past to just over 2% at present.

The central bank expects the economy to expand by 2.3% in 2026, slightly above forecasts of around 2% from some other institutions, because Thailand has shown greater resilience than initially expected.

The BOT’s latest assessment also projects growth of 1.8% in 2027, while warning that the recovery remains weak and uneven, with small and medium-sized enterprises still facing intense competition and limited capacity to adapt.

Vitai said the more serious concern was the decline in potential GDP, or the maximum sustainable rate at which the economy can grow. Thailand’s potential growth rate has fallen from about 5% in the past to only 2.7%.

“Is 2.3% good? No, it is not,” he said. “But the economy’s resilience has prevented growth this year from falling as deeply as 1.5%, as was initially projected when the war in Iran began.”

The BOT had previously forecast growth of 1.5% for 2026 before revising the figure upwards as exports, technology-related investment and improving conditions surrounding the Middle East conflict supported economic activity.

Ageing and investment shortfall weaken growth potential

Vitai identified two principal reasons for the decline in Thailand’s economic potential: the country’s transition into an ageing society and its failure to invest sufficiently in technological upgrades over the past 20 years.

Using 1997 as a base year with an investment index of 100, Thailand’s real investment index has risen to only 106. By comparison, the index has climbed above 200 in Malaysia, to 300 in Indonesia and to 900 in Viet Nam.

The figures show that investment has become the missing element in Thailand’s economic development, he said. Businesses have continued producing many of the same goods without sufficiently modernising production, causing the country’s competitiveness to deteriorate.

Vitai urged the public and private sectors to accelerate investment and adaptation, warning that failure to do so would further restrict the economy’s maximum growth capacity.

Thailand’s broader investment challenge comes as technology businesses, including artificial intelligence, data centres and semiconductors, account for a growing share of new foreign direct investment worldwide.

Bad debts expected to rise

Vitai also warned of mounting pressure from non-performing loans, with the NPL ratio expected to rise from about 2.8-2.9% towards 4%.

Such an increase would be severe, he said, particularly as financially vulnerable borrowers and smaller businesses continue to face restricted access to credit.

The BOT has acknowledged that financial institutions remain cautious about lending to higher-risk borrowers, especially SMEs, while financing costs for some smaller businesses remain elevated because of heightened credit risks.

Uneven growth deepens inequality

Although the economy has avoided a sharper slowdown, Vitai said growth remained highly uneven and increasingly resembled a K-shaped recovery.

Large companies and commercial banks have recorded strong profits and can obtain substantial funding from financial institutions at very low costs. SMEs and smaller businesses, however, have been hit much harder and are adapting more slowly because they lack the same financial advantages.

“Large businesses have access to a great deal of funding from financial institutions, perhaps too much, and at extremely low costs,” Vitai said.

“This means SMEs, which are already at a disadvantage, are becoming increasingly disadvantaged. A solution must therefore be found, and the BOT is trying to push this issue forward.”

Low-income earners and small business operators also remain highly vulnerable to rising living costs, he added.

The impact of higher prices is not distributed equally. Energy and food expenses account for a much larger share of earnings among low-income households than among wealthier groups, leaving poorer families more exposed to inflationary pressure.

The BOT has previously identified low productivity, limited economic resilience and high inequality as three of Thailand’s most pressing structural problems.

Export gains concentrated among foreign-owned companies

Thailand’s exports have expanded by 14% this year, but Vitai said the headline figure concealed a high degree of concentration.

Electronics and technology products linked to the global AI boom have grown by 43%, while other categories have expanded by an average of only 2.5%.

Just 1% of producers in the technology-related group, or approximately 105 companies, account for 85% of all electronics exports. Most of these companies are foreign-owned.

The sector also has an import-content ratio of about 70%, meaning that a large proportion of the components and raw materials used in production are brought in from overseas.

As a result, the benefits flowing into Thailand’s local economy are more limited than the strong export figures might suggest.

Global shocks become the new normal

Vitai said exceptionally high global uncertainty had become a new normal for businesses and policymakers.

In the past, major global shocks tended to occur every six to 10 years. Economic and geopolitical volatility now emerges almost annually, forcing businesses and governments to respond more rapidly and frequently.

The BOT’s annual seminar was held in Hat Yai, Songkhla, on July 13 and brought together central bank officials, economists and business representatives to discuss how southern enterprises could navigate mounting global uncertainty.

Against this backdrop, the central bank has broadened its focus beyond monetary policy and inflation stability to place greater emphasis on supporting the economy.

Vitai said the policy interest rate had been reduced to 1%, which he described as the world’s second-lowest rate after Switzerland, as part of efforts to prevent the economy from weakening further.

BOT tightens scrutiny of grey-economy transactions

The central bank is also pursuing more proactive measures against corruption and the grey economy, including tighter monitoring of unusual gold transactions and large cash movements.

Vitai said monthly physical gold withdrawals had previously reached about 4,000 kilogrammes, with a value exceeding 16 billion baht. Following stricter controls on abnormal transactions, monthly withdrawals have fallen to about 700kg.

The BOT has also introduced requirements for anyone withdrawing more than 5 million baht in cash to state the purpose of the transaction, as authorities seek to prevent large sums of cash from being used improperly.

Further controls are expected in the fourth quarter, when customers depositing more than 5 million baht will be required to declare the source of the money.

Vitai said the measures were intended to make it increasingly difficult for illicit funds to circulate through the financial system.