Thailand: Middle East Shock Tests Growth – DBS

Thailand's economy saw moderating momentum in the second quarter. Chua Han Teng, economist at DBS Group Research, noted in a latest report that Thailand's real GDP growth slowed to 1.9% year-on-year in Q2 2026, down from 2.8% in Q1, bringing first-half cumulative growth to 2.4%. The slowdown reflects a tug-of-war between external uncertainties and the pace of domestic demand recovery, but overall momentum has not stalled.

**Middle East Shock Weaker Than Expected, Supporting Forecast Upgrade**

Despite concerns over energy prices and supply chain disruptions triggered by Middle East tensions, DBS believes the actual impact has been more moderate than previously anticipated. Combined with strong Thai merchandise exports, resilient private investment, and ongoing policy support providing a floor, DBS has upgraded its 2026 full-year GDP growth forecast to 2.1% from previous levels. This adjustment indicates that while external risks have not dissipated, their drag on Thailand's economy is less severe than initially assessed.

**Monetary Policy Expected to Hold Steady**

On the rate outlook, DBS expects the Bank of Thailand to keep its policy rate unchanged at 1.00%. The central bank had earlier surprised with a 25-basis-point cut to 1.00% at its first meeting in 2026, extending a series of easing measures since October 2024. DBS believes that with narrowing monetary policy space, the central bank is more likely to enter an extended pause; while downside risks to inflation and growth, along with tight credit conditions, keep further easing options on the table, they are not the base case in the near term.

Overall, Thailand's economy is in a phase of "growth shifting gears without derailing," with the blunting of external shocks and continuity in domestic policy providing some buffer for the second half of the year.