to restore confidence, stimulate growth, and lay the groundwork for structural reform and investment upgrade amid global fragmentation
- SCB EIC forecasts Thailand’s GDP to grow 1.8% in 2025 before slowing to 1.5% in 2026. H2/25 average growth is likely below 1%, raising technical recession risk.
- Key growth drivers are losing momentum. Both external and domestic challenges are intensifying amid tighter fiscal constraints.
- Thai economy will becomes increasingly difficulty in relying on global demand.
- Trade tensions: The 19% U.S. tariff begins to weigh on Thai exports, with several product categories already contracting and likely to continue declining.
- Thai baht appreciation: ahead of regional peers and strongest since the 1997 crisis. The bath misalignment with economic fundamentals is placing additional pressure on exports and tourism.
- Foreign tourist arrivals well below last year with cautious spending: Signs of bottoming out are emerging, but strong baht could weaken competitiveness.
- Thailand’s domestic economybecomes increasingly fragile.
- Fragile SMEs: SMEs revenues still fall below pre-COVID levels and profitability subdued. Zombie firms continue to rise.
- Labor market under pressure: Unemployment rose in some segments with reduced working hours, and declining income.
- Fiscal constraints: Public debt is approaching its 70% ceiling in coming years. Thailand also faces rising risk of a sovereign credit rating downgrade.
- SCB EIC expects the MPC to cut rate to 1.25% later this year, followed by another cut to 1% in early 2026. This aims to ease financial conditions, debt burdens, and credit risks.
- The new government should focus on three key economic policies (3S):
- Stabilize – Restore confidence through clear, actionable goals, proactive communication, and effective implementation.
- Stimulate – Boost the economy with targeted, swift, and temporary fiscal measures, alongside monetary easing via policy rate cuts, credit guarantees, and exchange rate management.
- Structural Reform – Enhance government support for businesses by removing regulatory barriers, expanding market access, promoting green investment, and laying the foundation for economic transformation through future-oriented industrial policy, workforce skill development, and fiscal reform.
- SCB EIC forecasts global economy to slow to 2.5% in 2025 and 2.4% in 2026, pressured by trade and investment headwinds linked to Trump policies. Over the medium term, global investment is expected to gain momentum, driven by the shift towards digital economies. This will likely attract foreign direct investment (FDI) into strategic industries, supported by acceleration of existing trends such as friendshoring, reshoring, and nearshoring.
- Thailand must step up efforts to strategically attract FDI amid global shifts.
- Thailand’s FDI outlook remains promising, especially in emerging sectors like data centres and fugure food. Traditional target industries such as electronics and automotive still show growth potential but face rising pressures from global trade uncertainty and investment relocation towards USMCA, Japan, and the EU, which benefit from more favourable U.S. trade agreements.
- Thai businesses must enhance production standards, upskill workers, and better integrate into global supply chains. The government must accelerate regulatory reforms, streamline procedural barriers, and build an investment-friendly ecosystem.
Thai economy is likely to grow modestly over the next 1-2 years, as as external pressures deepen domestic fragilities.
SCB EIC expects rising pressures on the Thai economy from both external and internal fronts. Externally, intensifying global trade tensions and heightened global financial market volatility pose major risks. Internally, domestic vulnerabilities are in business and household sectors, as well as more fiscal constraint. As a result, Thailand’s GDP growth is projected to projected to slow to 1.8% in 2025 and 1.5% in 2026.
External challenges: Global volatility and weak demand limit Thailand’s reliance on external growth driver.
- Export slowdown: Thai exports recorded solid growth during the first eight months of 2025, driven by front-loading ahead of higher U.S. import tariffs and a surge in earlyyear gold exports. However, growth slowed in August as the 19% U.S. tariff took effect. Export gains to the U.S. are now concentrated in electronics, which remain tariff-exempt, while other categories haveturned negative. SCB EIC forecasts a decline in Thai exports for the rest of 2025 and into 2026, as front-loading fades and exporters face more complex U.S. tariff barriers amid weakening global demand.
- Baht appreciation adds further pressure to the economy: The Thai baht has appreciated over 8% against the US dollar this year—its strongest level in four years and the highest among regional peers.
- This has led to the baht’s trade-weighted index reaching its strongest point since the 1997 crisis. The appreciation is driven by both external factors, especially the weakening US dollar, and domestic factors, including a surge in gold exports due to rising gold prices, a current account surplus, and capital inflows into the bond market. The baht’s strength is misaligned with Thailand’s subdued economic fundamentals. The baht may act as a shock amplifier of external shocks, hurting export competitiveness and tourism recovery. Sectors most exposed those with high export dependence and domestic input sourcing (e.g. agricultural), as well as those service businesses highly reliant on foreign income (e.g. tourism). These sectors could face foreign exchange losses when converting US dollar revenues into baht terms to pay for local inputs and wages due to baht appreciation.
- Foreign tourist arrivals remain well below last year, but signs of bottoming out are emerging: Chinese visitors are still down year-on-year, though the decline is narrowing. Most tourists are returning with more cautious spending behavior. Thailand faces growing competition for Asian tourists, with overlapping target segments across regional peers. The bath continued appreciation poses a risk to Thailand’s price competitiveness, especially against destinations like Vietnam and China with weaker currencies. Efforts to attract tourists from India, the U.S., and China may be further challenged, suggesting a fragile recovery ahead.
Internal challenges: Business sector remains fragile. Labour market becomes weaker. Fiscal sector increasingly constrains.
Business revenues remain subdued with low profitability: The business sector, particularly SMEs, remains fragile. Revenue recovery is increasingly K-shaped. SMEs lag behind with average revenues still below pre-COVID levels. Income concentration among large firms continues to rise, with the top 1% now accounting for over 76% of total business income—highlighting growing challenges for SMEs. Meanwhile, the share of “zombie firms” (those unable to cover interest payments for three consecutive years) rose notably in 2024, particularly among SMEs. Listed companies have seen revenuerebound strongly post-COVID, but profitability declines and uneven across sectors. Industrial firms still face cost pressures and have yet to restore profit margins back to pre-pandemic level. As a result, private investment is expected to grow only modestly in 2025-2026. While imports of machinery and capital goods are likely to continue, mostly from foreign investment in electronics, EV, and data centers. While the short-term economic impact may be limited due to high import content, these investments lay the foundation for the country’s future New S-Curve industries.
- Labour market becomes weaker, with declining household income: Since early 2025, Thailand’s labour market has deteriorated, with rising unemployment among social security registrants and new graduates. Working hours have declined across sectors, while underemployment has increased, putting pressure on income recovery. Trade war risks are compounding these vulnerabilitiesin both direct and indirect ways. Employment in high- to medium-risk sectors has contracted, aligning National Statistical Office data showing a drop in average household income in H1/2025.
Fiscal constraints remain a concern: In the short term, fiscal stimulus may provide limited support to private consumption due tothe relatively small budget envelope. Political uncertainty—particularly if Parliament dissolves ahead of 2026 elections6—could delay FY2027 budget drafting process and slow disbursement. Public debt is approaching the 70% ceiling in coming years. The government faces challenges to narrow fiscal deficit. Interest expenditures are rising, while ageing-related welfare expenditures remain hard to reduce. In addition, revenue collection continues to underperform. These mounting pressures pose medium-term fiscal sustainability risk and raise the risk of a sovereign credit rating downgrade. To mitigate this, a clear framework, concrete measures, and transparent communication of a fiscal reform plan are urgently needed.
Interest rates are expected to decline further, easing tight financial conditions.
SCB EIC anticipates the MPC to cut the policy rate to 1.25% later this year, followed by a further cut to 1% in early 2026 to ease financial conditions. This aligns with Thailand’s slowing economic growth, inflation below the target range, and deteriorating credit quality.
Financial conditions remain tight in recent periods. Real policy rate remain above historical average. Credit growth continues to contract, and the baht has appreciated ahead of regional peers. Further rate cuts would help support the economy, reduce debt burdens, and facilitate deleveraging process for businesses and households. However, it may not significantly revive new lending due to caution from both financial institutions and borrowers.
The new government should focus on three key economic policies (3S):
- Stabilize – Restore confidence through clear, actionable goals, proactive communication, and effective implementation.
- Stimulate – Boost the economy with targeted, swift, and temporary fiscal measures, alongside monetary easing via policy rate cuts, credit guarantees, and exchange rate management.
- Structural Reform – Enhance government support for businesses by removing regulatory barriers, expanding market access, promoting green investment, and laying the foundation for economic transformation through future-oriented industrial policy, workforce skill development, and fiscal reform.
Global economy is expected to stay subdued through next year, weighed down by trade uncertainty
SCB EIC projects global economy to expand by 2.5% in 2025 and 2.4% in 2026, down from 2.8% last year, mainly due to escalating trade tensions under Trump 2.0 policies. Nevertheless global growth prospects improved slightly since mid-year, supported by progress in U.S. trade talks and front-loaded exports ahead of reciprocal tariffs. However, uncertainty remains high, with the U.S. likely to introduce further strategic trade measures, including sectoral and transshipment tariffs. The scope and details of these measures are still unclear.
Rising U.S. tariffs are deepening global economic fragmentation, weighing on between-bloc trade and investment. Still, global activity is supported by
- investment in strategic sectors like digital tech, artificial intelligence (AI), and clean energy
- diversification away from China (China +1), and (3) production shifts to lower geopolitical risks or allied countries (nearshoring and friendshoring), as well as reshoring to the U.S.
Fiscal and monetary policies are expected to help cushion global activity, especially in major economies. China’s fiscal deficit has widened, and Europe has relaxed constraints to expand budgets aimed at addressing economic challenges. However, rising fiscal deficits may worsen fiscal vulnerabilities in several countries.
On monetary policy, the Fed has cut rates by 25 bps since this year, and is expected to lower them by an another 100 bps in total through the remainder of 2025 and into 2026, in response to a weakening labor market, despite lingering inflation risks from tariffs. The People’s Bank of China has cut rates by 10 bps, with a further 30 bps expected, alongside targeted financial measures for services and advanced manufacturing. The European Central Bank is projected to cut another 25 bps, following a cumulative reduction of 100 bps, marking the end of its easing cycle. Meanwhile, the Bank of Japan raised rates by 25 bps earlier this year and may hike another 50 bps in 2026 as Trump tariff impacts, political developments, and wage negotiations unfold.
Thailand must accelerate strategic FDI attraction efforts amid global shifts.
Despite challenges from Trump’s tariff policies, Thailand’s FDI shows growth potential. Strategic sectors aligned with global trends such as data centers and future food are expected to attract rising foreign investment.
Meanwhile, traditional targeted industries face mixed prospects. Electronics and automotive remain well-positioned to meet global demand. However, expansion may be constrained by U.S. tariff uncertainty and shifting investment flows toward USMCA countries with more favorable trade deal with the US.
Thailand’s FDI outlook faces growing challenges from regional competition, particularly Vietnam and Malaysia, which offer similar target industries and investment incentives. However, the BOI has revised its investment promotion conditions effective July 2025, particularly for sectors vulnerable to U.S. tariff measures. This include adjusting existing schemes for automotive and electronics sectors, discontinuing support for new projects in oversupplied or trade-sensitive sectors to protectionism like solar cells and steel, and encouraging environmentally sensitive industrie such as metals, chemicals, and plastics to locate within industrial estates.
Thai businesses should act swiftly to capture FDI opportunities from accelerated global trends in friendshoring and nearshoring. This includes upgrading production standards, forming strategic alliances/ clusters, integrating into global supply chains, and preparing for technology transfers, workforce upskilling, and investment in emerging technologies. Infrastructure-related businesses must also be ready to support incoming investment flows.
The government can play a key role in attracing investment by reducing barriers, streamlining procedures, and improving regulation. Creating a supportive investment ecosystem and accelerating trade negotiations are also essential to boost investor confidence in Thailand’s policy direction and positioning the country within the shifting global supply chain.
