Thailand Q1 growth slowed as tourism weakened amid Iran war

Thailand’s economy likely grew at a slower pace in the first quarter of 2026, as weak domestic demand and a tourism slowdown linked to the Iran war weighed on overall activity despite strong exports tied to artificial intelligence-related products.

According to a Reuters poll of 17 economists conducted between May 8 and May 14, the tourism-dependent economy was expected to expand 2.2% year-on-year during the January-March quarter, easing from 2.5% growth recorded in the previous quarter.

Forecasts ranged between 1.0% and 3.0%.

On a seasonally adjusted quarterly basis, Thailand’s gross domestic product (GDP) was expected to rise just 0.1%, based on the median estimate of eight economists.

Forecasts ranged from a contraction of 1.0% to growth of 0.9%.

Weak consumption weighs on growth

Economists said weak consumer demand remained a key drag on Southeast Asia’s second-largest economy.

“The drag on growth is likely to come from weaker consumption and lower tourism arrivals,” said Jun Hao Ng, assistant economist at Oxford Economics, as cited in a Reuters report.

Private consumption, which has long been a major driver of Thailand’s economic activity, remained under pressure due to high household debt levels and fragile consumer confidence.

Ng said private consumption likely slowed after the temporary support provided by the government’s co-payment programme ended in the fourth quarter of 2025.

The slowdown in domestic demand added to broader concerns surrounding Thailand’s economic outlook, especially as external uncertainties continued to affect key sectors.

Tourism sector hit by regional tensions

Thailand’s tourism industry weakened sharply toward the end of the quarter, according to official data.

Tourist arrivals fell 1.8% in February before dropping 8.7% in March.

Last month, Bank of Thailand Assistant Governor Chayawadee Chai-anant said tourism arrivals from Gulf countries dropped to nearly zero in March after attacks from Iran led to airport closures across the region.

Tourism from Malaysia also softened during the quarter, as rising fuel prices discouraged road travel into Thailand.

The decline in tourism added pressure on the economy, given the sector’s importance to employment and consumption.

Economists also warned that disruptions related to air travel could continue to weigh on tourism activity in the coming months.

Exports remain a bright spot

Despite weakness in domestic demand and tourism, exports continued to support Thailand’s economy.

Strong global demand for electronics, especially products linked to artificial intelligence and data centre infrastructure, boosted shipments during the quarter.

Exports surged 18.7% in March from a year earlier to $35.16 billion, marking the 21st consecutive month of growth.

Overall shipments increased nearly 18% during the first quarter of 2026.

However, economists cautioned that export strength alone may not be enough to offset broader economic weakness in future quarters.

Economists warn of slower quarters ahead

Economists in the Reuters poll said second-quarter growth could face additional challenges from supply disruptions and weaker tourism activity.

“After a resilient first quarter, second-quarter growth will be a different story,” said Erica Tay, director of macro research at Maybank.

“The effect of supply disruptions on the industrial, agricultural and fishery sectors will be more apparent, as will the impact of flight disruptions on tourism-related activities,” Tay added.

Thailand’s economy was expected to expand 1.3% this quarter, while annual growth for 2026 was forecast to average 1.6%.

The Bank of Thailand recently lowered its 2026 economic growth forecast to 1.5% from 1.9%, reflecting growing concerns over domestic and external pressures facing the economy.