State of the Thai economy: Calm before the storm?

The National Economic and Social Development Council (NESDC) reported Thailand’s GDP growth at 2.8 per cent in the first quarter of 2026, accelerating from 2.5 per cent in the previous quarter. After seasonal adjustment, the Thai economy expanded by 0.7 per cent from the fourth quarter of 2025.

“It is better than expected and taking the growth in the first quarter into account, we are upgrading our forecast for the full year to 2 per cent growth, up from 1.4 per cent in the base case scenario projected earlier,” said Danucha Pichayanan, secretary-general of the NESDC, a state-run think tank.

The current economic outlook is bogged down by uncertainty due to the persistently high oil prices after the Iran war broke out in March.

Danucha said he was wary of the challenges the Thai economy would face from the global trade and economic slowdown caused by the Iran war combined with domestic headwinds of high household debt.

The Q1 surprise

Several factors contributed to accelerating growth in the first quarter. “Total investment, exports of goods and government consumption expenditure accelerated, while private consumption continued to expand favorably. Meanwhile, exports of services returned to expansion,” said Danucha.

Total investment expanded strongly by 9.9 per cent, from 8.1 per cent in the previous quarter, marking the highest growth in 44 quarters since the first quarter of 2015.

Private investment increased by 10.1 per cent, from 6.5 per cent in the previous quarter. Investment in machinery and equipment expanded strongly by 11.5 per cent, from 6.8 per cent in the previous quarter, mainly driven by stronger investment in industrial machinery and vehicles, according to the NESDC report.

Private consumption expenditure expanded favorably by 3.2 per cent, continuing from 3.3 per cent in the previous quarter, in line with the expansion across all expenditure categories. Expenditure on non-durable goods increased by 3.5 per cent, up from 2.5 per cent in the previous quarter, following stronger growth in spending on personal transportation equipment and electricity and gas consumption, while spending on food and beverages decelerated, according to the NESDC.

Consumers have been facing a higher cost of living due to sharply rising oil prices since the Iran war. This has led the government to implement an economic relief package and energy transition programme worth 400 billion baht, including a co-payment scheme amid the oil crisis.

Calm before the storm?

In response to the NESDC’s quarterly economic report, Pipat Luengnaruemitchai, chief economist at Kiatnakin Phatra Financial Group, said that the Thai economy had shown clearer “positive signals” in the first quarter across several key engines of growth, as if the storm was about to pass and the skies were about to clear.

Private investment surged to the strongest pace in over three years

The real star of this quarter was gross fixed capital formation, or total investment, driven mainly by “private investment” that jumped 10.1 per cent. This reflects that businesses have started to move again, supported by investment in data centers and the AI capex boom.

Tourism is back to positive for the first time in a year.

After the tourism and services sector languished and contracted continuously last year, total tourism revenue in this quarter “returned to positive for the first time in three quarters”, rising 3.8 per cent to about 759 billion baht. The number of foreign tourists surpassed 9.3 million, pushing hotel occupancy rate up to an average as high as 74.9 per cent.

Meanwhile, domestic consumption is still holding up and high‑tech exports are soaring, providing a solid cushion. Overall merchandise exports surged 17.8 per cent, benefiting fully from strong global demand for computer parts and electronic components.

Sharp surge in imports

A very interesting detail is that imports of goods and services in this quarter jumped as much as 21.1 per cent, leaving Thailand with a small trade deficit of 9.6 billion baht.

Reflecting on the higher imports, Pipat said that on the positive side imports of “capital goods” such as machinery and components are genuinely brought in for domestic investment.

However, imports related to transshipment, which involves importing parts, then processing them and immediately re‑exporting to a third country, could be misleading. Although this kind of activity makes both import and export volumes look impressive, it does not actually create much value addition to benefit the Thai economy, Pipat pointed out.

He warned that all the signs of strength and recovery are in fact a state of “calm before the storm”.

Time lag of energy prices

The war in the Middle East flared up only in March, and domestic retail fuel prices began to surge around the middle of March.

The average inflation figures in Q1 – headline consumer price index at minus 0.5 per cent and producer costs that still look subdued – do not yet reflect any impact from this round of oil price increases. The real impact and the true cost pressures are only just beginning to flow in, and will start to squeeze Thai corporate margins from the second quarter onward.

K‑shaped inequality

Another worrying layer is that even though the overall manufacturing sector seems to have escaped the worst, there are two clearly diverging lines forming a “K”, according to Pipat.

The upward leg, or Upper K, are industries producing electronic components and advanced technology, which are growing along with the global supply chain and the world’s capex demand cycle. These players are well‑capitalized and use a high degree of robotics and automation.

The lower K includes traditional industries and light manufacturing such as garments, leather products, furniture and beverages, which in this quarter “continued to contract by 0.7 per cent”, deteriorating alongside an 8.5 per cent drop in agricultural product prices that dragged total farm income down by 6.3 per cent.

“The grassroots level is therefore extremely fragile,” Pipat warned.

Nevertheless, Asian countries facing similar global conditions recorded a strong showing: Taiwan’s economy grew 13 per cent this quarter, Vietnam by 7.8 per cent, Malaysia by 5.4 per cent, and Indonesia by 5.6 per cent. Even Singapore managed 4.6 per cent.

“It has been a very strong quarter for Asia as a region, however Thailand is barely growing. This further underlines that Thailand’s economic structure is slower to recover and less flexible than that of our peers,” added Pipat.