Thai Economy Set for Harsher H2 Slowdown Amid Rising Risks

 

Thailand’s economy is expected to experience a more pronounced slowdown and potential prolonged stagnation in the second half of this year, according to the Bank of Thailand (BOT).

 

The central bank highlighted a range of escalating risk factors, extending beyond the recently imposed US reciprocal tariffs.

 

Speaking at a monthly press conference on Thursday, Chayawadee Chai-anant, Assistant Governor of the Bank of Thailand, explained that the economy's deceleration in the latter half of 2025 is primarily driven by heightened downside risks.

 

She noted that various emerging and protracted situations could further dampen tourist confidence.

 

Looking at the overall economic landscape, Thailand's GDP expanded by 3.1% in the first quarter, with the second quarter anticipated to show similar growth around 3%.

 

This performance suggests the Thai economy will achieve approximately 3% growth for the first half of the year.

 

However, the BOT clearly forecasts a marked deceleration from these levels in the second half, with lower quarter-on-quarter growth.

 

Therefore, the central bank's current view is that the economy will undergo a gradual slowdown, characterised more by a prolonged slump than a sharp, precipitous collapse.

 

"Our outlook for the Thai economy in the second half isn't good," Chayawadee stated. "The growth figures we've seen are from the first and second quarters, which performed well. So, while GDP shows growth, the public's feeling of hardship is worsening. We don't feel the economy is good, which leads us to believe that the third and fourth quarters won't be as strong as the first and second. As for the possibility of seeing quarter-on-quarter negative growth, it's possible, but we need to monitor various developments closely."
 

 

 

 

Mounting Uncertainties

This assessment comes as questions about Thailand's economic growth prospects for the latter half of 2025 intensify amid considerable domestic and international uncertainty.

 

Key concerns include export performance, the evolving situation on the Thai-Cambodian border, and the potential impact of renewed Trump import tariffs.

 

Furthermore, the tourism sector may not recover as strongly as initially expected, prompting various agencies, including the BOT, to monitor the economic situation with increased vigilance.

 

The recent upward revisions to GDP forecasts by many agencies stem from previously conservative outlooks. These adjustments reflect the stronger-than-expected figures from the first two quarters, aligning forecasts with actual performance.

 

Similarly, the International Monetary Fund (IMF) has also upgraded its projections for both the global and Thai economies, believing that the global and US economies might not perform as poorly as initially feared, which could benefit trading partners like Thailand.

 

Despite these revisions, several factors still require close monitoring as uncertainty remains high. The BOT acknowledges increased risks in the second half, with Trump's import tariffs identified as a significant concern.

 

The central bank's 2.3% GDP forecast for this year is based on an assumption of Trump's tariffs being around 18%, a figure consistent with assessments from other bodies like the National Economic and Social Development Council (NESDC) and the Fiscal Policy Office.

 

However, a higher actual tariff rate could lead to more substantial economic impacts.
 

 

Assessing the full severity of this impact requires a multi-faceted approach.

 

Factors such as the tariff rates applied to Thailand's trading partners and competitors, particularly China, and the adaptability of Thai businesses – especially those in significantly affected industries – must be considered.

 

The impact is unlikely to be uniform across all sectors. Therefore, a comprehensive assessment needs to go beyond mere figures, evaluating the broader interconnectedness with various trading markets.

 

"If we look at the impact from tariffs, based on several of our trading partners and competitors, most large countries have seen rates around 15%, excluding the UK," Chayawadee noted. "Meanwhile, countries in our region are approximately 20% plus or minus. We hope Thailand's negotiating team will work diligently to secure the best possible figure for us."

 

Beyond Tariffs: Border Tensions and Exports

However, the escalating risks to the Thai economy are not solely attributable to Trump's tariffs or potential export disruptions.

 

The Thai-Cambodian border situation has also begun to affect local economic activities.

 

If prolonged, this could impact incomes and confidence, potentially escalating into broader social issues, as its effects might extend beyond the immediate area to influence overall confidence and the wider economy.

 

Another assessment will be crucial to determine the duration of this conflict.

 

Regarding overall exports, while the first-half figures appear favourable, clear signs of a slowdown have been evident since June and are expected to continue into the third and fourth quarters of this year, as well as next.

 

Thai exports are likely to face sustained pressure, a scenario the BOT had already anticipated.

 

The BOT will officially reassess its outlook for the Thai economy in October.

 

Whether it meets the central bank's 2.3% target will depend on various factors, including the final impact of Trump's tariffs, the duration of the Thai-Cambodian tensions, and the resolution of potential flooding, all of which will inform the comprehensive annual assessment.

 

 

 

Interest Rates and June Economic Snapshot

On monetary policy, the Monetary Policy Committee (MPC) is scheduled to meet again in August.

 

The Assistant Governor stated that interest rate considerations will hinge on the continuously evolving risk assessment.

 

The current interest rate is deemed sufficiently robust to accommodate existing risks.

 

However, she stressed that interest rates are not the sole instrument for managing the economy, and supplementary government measures may be required in conjunction.

 

Thus, while the current interest rate offers a degree of stability, in highly uncertain situations, any decisions must be based on clearer forthcoming data.

 

Thailand's economic activity slowed in June compared to the previous month.

 

This was marked by a decrease in both goods exports and manufacturing output, following an earlier surge to meet deadlines before the expiry of the US Reciprocal Tariff phase-out.

 

Tourism-related activities also declined, influenced by reduced international tourist numbers and revenue. Private consumption saw a decrease across almost all categories. Conversely, government spending and private investment continued to expand.

 

General inflation showed a smaller negative rate than the previous month, mainly due to the fresh food category, particularly an increase in vegetable and fruit prices.

 

Core inflation remained broadly similar to the prior month. The labour market remained stable, though an increase in overall unemployment benefit claims warrants close monitoring.

 

For the second quarter as a whole, the Thai economy expanded at a rate similar to the first, driven by momentum from goods exports, industrial production, government spending, and private investment.

 

However, tourism-related activities slowed in line with international tourist numbers, while private consumption remained stable.

 

 

 

Key Factors to Watch
Looking ahead, several critical factors require close monitoring:

• The outcome of trade negotiations between Thailand and other nations with the United States.
• The ongoing situation on the Thai-Cambodian border.
• Developments within the tourism sector.
• The impact of flooding in northern regions.
• The effectiveness of government economic measures.

 

 

Digital Assets for Tourists
 

Naphongthawat Phothikit, Senior Director of the Payment Systems Policy and Financial Technology Department at the BOT, commented on the recent development where the Securities and Exchange Commission (SEC) is consulting on a sandbox project.

 

This initiative aims to enable regulated digital asset business operators to facilitate foreign tourists in exchanging digital assets for Thai baht.

 

This is viewed as an effort to boost Thai tourism by making it easier for foreign visitors to make payments in the country.

 

The BOT, however, remains focused on risk management, particularly regarding Know Your Customer (KYC) procedures. Given that users are foreign nationals who may be unfamiliar with such processes, strict and robust KYC mechanisms are considered crucial.