Thai GDP forecast cut to 1.7% amid multiple crises and political uncertainty

The Centre for Economic and Business Forecasting (CEBF) at the University of the Thai Chamber of Commerce (UTCC) has revised Thailand’s GDP growth forecast for 2025 down from 3% to 1.7%, citing a combination of global and domestic challenges weighing on the economy in the second half of the year.

Thanawat Pholvichai, President of UTCC and the centre’s chief adviser, outlined a string of mounting concerns: the ongoing trade war and potential US tariffs on Thai goods, the Israel-Iran conflict, rising tensions along the Thai-Cambodian border, domestic political instability, and the effectiveness of the government’s stimulus disbursement.

The revised forecast assumes no further escalation in any of these risk areas. The outlook hinges on the US imposing only 10–15% tariffs on Thai products — with negotiations now entering the final 10 days before the July 8 deadline. It also assumes a quick de-escalation of both the Middle East conflict and Thai-Cambodian border issues, and that Prime Minister Paetongtarn Shinawatra remains in office throughout 2025, enabling 50% of the national budget to be disbursed. Export growth is still expected to come in at +2.5%.

Risk Scenarios for Thai GDP in 2025:

1. Base case (55% probability):

• GDP grows 1.7%
• US tariffs at 15–20%
• Border tensions and Iran-Israel conflict de-escalate
• 50% of economic stimulus budget disbursed
• Prime Minister remains in office throughout 2025

2. Worse case:

1. GDP grows 1.3%
2. US tariffs at 25–30%
3. Thai-Cambodian tensions moderately prolonged
4. 50% of stimulus disbursed
5. Political instability persists

3. Worst case:

• GDP growth drops to 0.9%
• PM dissolves parliament, triggering instability
• Only 25% of stimulus budget disbursed
• US imposes 25–30% tariffs
• 100% closure of Cambodian border checkpoints for the remainder of 2025

4. Best case:

• GDP growth reaches 2.3%, above UTCC’s current forecast
• PM remains in office through year-end
• 75% of stimulus budget disbursed
• US imposes only 10% tariffs
• Conflicts in Cambodia and the Middle East are resolved swiftly

The outlook remains highly sensitive to political developments and external shocks. While the base-case scenario is still within reach, Thanawat stressed that prolonged political instability or a failure to resolve trade tensions could cause Thailand’s economy to stall further.

Thanawat also assessed the potential economic impact of the Thai-Cambodian border conflict. If the situation de-escalates within one month, Thai exports could decline by 11.66 billion baht, reducing GDP by 0.06%. However, if tensions escalate and border checkpoints remain closed through the end of 2025, the loss in export revenue could reach 69.95 billion baht, with GDP shrinking by 0.38%.

Regarding the Prime Minister’s leaked audio clip, the UTCC has outlined three possible political scenarios and their respective economic impacts:

1. PM remains in office throughout the year, enabling continuous budget disbursement and implementation of the 157-billion-baht stimulus plan – GDP impact: -0.06%

2. New PM from the same coalition bloc is appointed, causing a 2–3 month delay in the 2026 budget – GDP impact: -0.20%

3. PM dissolves the House, delaying stimulus efforts for 3–6 months and restarting the 2026 budget process – GDP impact: -0.66%

The Iran-Israel conflict was also assessed under three possible outcomes:

1. Quick resolution – GDP impact: -0.07%

2. Prolonged conflict – GDP impact: -0.59%

3. Escalation into full-scale regional war, including Iran closing the Strait of Hormuz – GDP impact: -1.07%

In the case of US retaliatory tariffs, UTCC projects the following impacts:

1. 10% tariff – export losses of 74.05 billion baht, GDP impact: -0.40%

2. 15–20% tariff – export losses of 131.81 billion baht, GDP impact: -0.71%

3. 25–30% tariff – export losses of 201.86 billion baht, GDP impact: -1.09%

Wichian Kaeosombat, CEBF Assistant Director, said the second half of 2025 remains highly uncertain, with several key risk factors:

• US trade policy – uncertainty over tariff rates Thailand can negotiate.
• Iran-Israel conflict – with potential effects on global oil prices, inflation, and monetary policy.
• Thai-Cambodian border tensions – affecting checkpoint operating hours and import restrictions.
• Effectiveness of the 157-billion-baht stimulus package – dependent on disbursement progress.
• Stability of PM Paetongtarn’s government – following the leaked conversation with Hun Sen.

Based on these variables, UTCC maintains its base-case GDP growth forecast of 1.7% for 2025. Other macroeconomic projections include:

• Exports: +2.5%
• Imports: +2.5%
• Headline inflation: 0.5%
• Public sector investment: +6%
• Private sector investment: -1.2%
• Government consumption: +1.3%
• Private consumption: +2.4%
• International tourist arrivals: 36 million
• Tourism revenue: 1.69 trillion baht
• Household debt: 87.4% of GDP