The decline in crude oil prices following the interim peace agreement between the United States and Iran is creating a more optimistic outlook for the Thai economy in the second half of the year.
Thailand is a net importer of energy, including both oil and liquefied natural gas (LNG), with 80 per cent of its crude oil requirement sourced from abroad, mostly from the Middle East.
CNBC reported that oil prices had erased wartime gains on Thursday (June 25), as investors bet global crude supplies would improve after tankers that had been stranded in the Persian Gulf for months began leaving the Strait of Hormuz.
International benchmark Brent crude futures for August fell 1.3 per cent to $72.75 per barrel, hovering at levels last seen before the Middle East war broke out in late February. US West Texas Intermediate futures for August dropped 1.1 per cent to $69.60.
More than 20 oil tankers carrying about 35 million barrels of crude have passed through the Strait of Hormuz since the US and Iran reached an agreement to reopen the key shipping route, according to trade-tracking firm Kpler.
The markets, however, were again gripped by anxiety after an attack on a cargo vessel near Oman later on Thursday. The attack, blamed on Iran by the US, pushed up international Brent prices to $75.26, while West Texas Intermediate futures spiked to $71.92 per barrel.
Cautious optimism
“It is really very good news that oil prices are continuing to fall and that would certainly improve the economic outlook for Thailand,” says Praipol Koomsup, an independent economist specializing in energy matters.
“Though the price of LNG has not gone down, the fact that it is not increasing is itself good enough,” he adds.
He cautions that consumers may continue to shoulder high electricity bills, as the government will need to balance the Oil Fuel Fund, which suffers a large deficit as a result of the energy subsidy scheme during the war period.
“Should the US and Iran peace process go smoothly, then next year we would see electricity bills drop significantly,” he said.
No major concern over inflation
The Bank of Thailand (BOT) has been less concerned about inflationary pressure from energy prices, which explains the central bank’s Monetary Policy Committee (MPC) voting unanimously on June 24 to maintain the policy rate at 1 per cent, a relatively low rate compared to other countries.
The MPC, which voted 7-0, saw no need to fight inflation for the time being.
MPC secretary Don Nakornthab said that inflation was expected to rise due to supply-side factors, but would subsequently fall once supply-side pressures gradually ease.
Thailand’s inflation forecasts for this year and next year remain within the target range. In contrast, most emerging market economies expect next year’s inflation to exceed their targets.
Consequently, there is no urgent need for Thailand to introduce special measures to manage inflation, being viewed as manageable under current conditions, according to Don.
However, if future estimates indicate a severe spike in inflation, the MPC would adjust its policy and raise interest rates if necessary, he assured.
“The previously anticipated chance of headline inflation hitting the 5 per cent mark may no longer materialize, as global oil prices have begun to decline,” Don added.
The MPC is closely monitoring inflation. Despite being low in April and May, it is expected to pick up starting in the second and third quarters. Inflation in June is projected to rise to 3 per cent, and could reach 4 per cent from August onwards.
Nevertheless, the MPC assesses that this surge in inflation will be temporary, with the following projections:
● Headline inflation is expected to be 2.8 per cent this year and drop to 1.4 per cent next year.
● Core inflation is projected at 1.5 per cent this year and 1.4 per cent next year.
Inflation in Thailand is seen as modest compared to other countries like the US, where the market expects the US Federal Reserve to raise its policy rate this year to fight inflationary pressure.
BOT raises GDP forecast
The Thai economy is projected to expand by 2.3 per cent in 2026 and by 1.8 per cent in 2027, the central bank has forecast.
“Without the government’s stimulus measures, growth would have been only 1.8 per cent this year,” says Don, referring to the co-payment scheme to shore up consumption and the energy transition project, costing a combined 400 billion baht.
The BOT pointed out that growth had been stronger than previously anticipated, supported by merchandise exports and private investment associated with the technology and AI cycle, government measures to alleviate the impact of the energy crisis, as well as an improvement in the situation surrounding the Middle East conflict.
At the same time, the realized impact of the conflict on the manufacturing and tourism sectors has been less severe than previously assessed, with large businesses demonstrating greater adaptability than anticipated.
Layout restrictions notwithstanding, the overall economic expansion is projected to remain low and uneven.
Small and medium-sized enterprises (SMEs) continue to face difficulties in adaptation and are constrained by intense competition. Meanwhile, most households remain under pressure from decelerating income growth and rising living costs, which will weigh on private consumption once government relief measures are phased out, according to the MPC.
Overall credit growth remains subdued, highlighting the need to continue monitoring the loan quality of SMEs and vulnerable households. The MPC believes that an accommodative monetary policy stance, coupled with targeted financial measures, has helped support the economic recovery.
The baht has depreciated against the US dollar, driven by the shift in the US Fed’s monetary policy stance. Overall, interest rates within the financial system have remained stable. Total credit is expanding at a low rate, driven primarily by large corporate borrowers, while SME loans continue to contract.
Financial institutions remain cautious in lending to high-risk borrowers. Although overall credit quality has remained stable, the debt repayment ability of SMEs and vulnerable households should continue to be monitored.
The MPC is encouraging financial institutions to continue implementing targeted financial measures to support these vulnerable groups, according to the statement issued by the MPC.
Economic recovery in second half of 2026
Kasikorn Research Center recently maintained its 2026 GDP growth forecast at 2 per cent. The GDP likely passed its lowest point in the second quarter of 2026, according to the center.
KResearch deputy managing director Ms. Nattaporn Triratanasirikul revealed that the Thai economy would likely hit its nadir in the second quarter and gradually recover in the second half of the year, particularly in the third quarter—buoyed by the government’s stimulus measures.
Meanwhile, economic risks persist due to uncertainties surrounding US tariff policies, which could impact Thai exports for the remainder of the year.
Furthermore, despite the resolution of the conflict involving Iran, global energy prices have not dropped very rapidly. This means the pass-through of producer costs to the consumer basket will continue, resulting in headline inflation peaking in the third and fourth quarters of the year.
Should oil prices drop rapidly, GDP would be higher, according to the KResearch team.
By Thai PBS World’s Business Desk
