Thai industry warns of stagflation risk as factory closures jump 58%

Thailand’s industrial sector is coming under intensifying pressure, with factory closures rising sharply and business leaders warning that the country could slide towards stagflation if the energy crisis drags on.

Kriengkrai Thiennukul, chairman of the Federation of Thai Industries (FTI), told Thansettakij that Thai industry faced heavy pressure on multiple fronts in the first quarter of 2026, leaving manufacturing and trade in a fragile state.

One of the key pressures, he said, came from uncertainty surrounding US trade measures after Thailand’s trade surplus with the United States rose rapidly. Thailand moved from 11th place in 2024 to seventh in 2025 among countries drawing Washington’s attention, raising concerns that it could come under scrutiny under Section 301.

At the same time, the situation along the Thai-Cambodian border remains unresolved. Although ceasefire talks have taken place, border checkpoints have still not reopened and there remains a risk of renewed clashes. Domestic political uncertainty during the election period has also continued to weigh on investor confidence and business decision-making.

The strain is already showing up in industrial data. Capacity utilisation in February stood at 58.21%, still below the 60% level. During January and February this year, only 116 new factories opened, down 60.14% from the same period a year earlier. In contrast, 141 factories closed, an increase of 58.43%, reflecting slower new investment and continuing pressure from geopolitical uncertainty.

By the end of the first quarter, Thai businesses were also being hit by the fallout from the Middle East conflict, which has fed into a broader energy crisis and pushed up costs across the economy. Manufacturers have been particularly affected by rising production and transport costs, with diesel prices climbing to 48.40 baht a litre, more than 60% higher than before the war.

The manufacturing sector is also facing shortages of key raw materials, including plastic resin, chemicals and aluminium. These shortages have pushed raw material prices up by around 10-30%, further adding to the cost burden for operators across multiple industries. Kriengkrai said such pressures could leave Thailand’s economic growth in the first quarter at below 2%.

He warned that if the Middle East conflict continues and no agreement is reached after the 14-day ceasefire period, crude oil prices are likely to remain above US$100-US$120 a barrel. That would place even greater pressure on production costs throughout the supply chain, especially as businesses begin to run down their existing raw material inventories and freight costs continue to rise.

If the Strait of Hormuz cannot be reopened for normal commercial shipping, the situation could become even more severe and drive industrial costs higher still. Kriengkrai said this could push product prices up by around 8-10% and significantly increase inflationary pressure in the second quarter.

That in turn would add to the burden on households already facing a rising cost of living as goods and services become more expensive. Businesses, meanwhile, would be forced to deal with higher operating costs at a time when purchasing power is weakening. This combination, he said, raises the risk of Thailand entering stagflation, where inflation remains high while economic growth slows at the same time.

Under such pressure, some industries may no longer be able to absorb higher costs and could be forced to adjust plans or slow production, reducing overall capacity utilisation. The impact is expected to be especially acute in sectors already dealing with steep increases in input prices caused by shortages, as well as among SMEs with tighter liquidity and more limited access to capital.

Still, there remains a possible route to easing the pressure. Kriengkrai said that if talks between the United States and Iran lead to a peace agreement and the Strait of Hormuz reopens to shipping, it would help relieve the energy crisis and reduce the impact on production and transport costs across the wider economy.

Even in that scenario, however, Thailand would be unlikely to recover immediately. Businesses would still need time to adjust, work through high-cost inventories and wait for domestic purchasing power to recover. Any rebound, he said, would therefore likely be gradual and concentrated in the second half of the year.

If the government is able to roll out economic relief and recovery measures effectively and in a targeted way, that would provide another important source of support. For now, the Joint Standing Committee on Commerce, Industry and Banking, or JSCCIB, expects the Thai economy to grow by 1.2-1.6% this year, with inflation at 2-3%.