FPO downplays ‘stagflation’ fears as FY26 GDP growth forecast is cut to 1.6%
The Fiscal Policy Office (FPO), a key department under Thailand’s Ministry of Finance, remains confident that the Thai economy has not yet entered a state of ‘stagflation’, despite slashing its annual growth forecast and bracing for a sharp rise in inflation driven by geopolitical tensions.
The FPO revised its 2026 GDP growth projection downward on Tuesday to 1.6%, from a previous estimate of 2.0%.
The downgrade reflects the lingering impacts of conflicts in the Middle East, which have destabilised global energy markets and pushed Thailand’s headline inflation forecast from 0.3% to 3.0%, the upper limit of the central bank's target range.
FPO Director Dr. Vinit Visessuvanapoom addressed growing public concern regarding stagflation, a condition where stagnant economic growth coincides with high inflation and unemployment.
"Technically, Thailand does not meet the criteria for stagflation. Our investment fundamentals and financial stability remain controllable," Vinit stated.
He pointed out that, while energy costs are rising, key economic engines, specifically government spending and exports, continue to provide essential momentum.
The FPO also adjusted its tourism outlook, forecasting a dip in foreign arrivals to 33 million, as private investors adopt a wait-and-see approach amidst global uncertainty.
To counter the slowdown, the Ministry is preparing more efficient stimulus measures.
The FPO is currently designing the ‘Thai Chuay Thai Plus’ (Thai help Thai) scheme and a new round of state welfare cards.
A key focus will be on the multiplier effect of government spending. According to a study, every 100 billion baht in direct state spending is estimated to boost GDP by 0.2%, while co-payment schemes, like the proposed "Khon La Khrueng Plus" (Half-and-Half) measure, requiring only 40 billion baht in state funds, could drive GDP growth by 0.7%.
"Co-payment models are more effective than simple cash handouts because they involve private sector participation, causing money to circulate through the system multiple times," Vinit explained.
The Ministry of Finance acknowledged that traditional stimuli may no longer suffice in today’s changing economic structure.
In response, the Ministry is fast-tracking new green initiatives, such as tax deduction incentives on ‘solar rooftops’, to reduce long-term energy costs, alongside the provision of soft loans through collaboration with financial institutions to offer special interest rates for clean energy investments.
Dr. Warotai Kosolpisitkul, International Economic Advisor, added that true stagflation is historically rare.
He expressed his belief that the current pressures will act as catalysts for Thai businesses to adapt in a volatile global economic landscape.