The outlook for the Thai economy in 2025 points to a potential for growth while also being bogged down by the underlying challenges.
The Bank of Thailand (BOT) has forecast GDP growth at 2.9 per cent for this year, only a slight improvement on last year’s 2.7 per cent. Alarmingly, private consumption is expected to slow down from 4.5 per cent to 2.4 per cent. Private investment, in contrast, shows a positive trajectory, rebounding from a contraction of 2.2 per cent last year to an anticipated growth of 2.2 per cent in 2025. Public investment is projected to surge from 2.9 per cent to 5.1 per cent, while exports are expected to grow by 2.7 per cent, down sharply from 4.9 per cent last year.
Economic threats
The positive indicators are smothered by looming threats to the economy. Senior officials at the central bank have warned of increasing geopolitical uncertainties and unpredictable economic policies from major global economies.
“Economic uncertainty has increased this year due to continuing geopolitical tensions and swings in the policies of major economies,” says BOT assistant governor Sakkapop Panyanukul.
These uncertainties pose risks to Thailand’s export-driven economy, particularly the potential imposition of higher tariffs of about 10-20 per cent on Thai exports by incoming US President Donald Trump. Trump has also threatened to impose 60 per cent tariffs on Chinese products. Additionally, the influx of cheaper Chinese goods continues to threaten the local industrial sector, including automobiles, electronics, electrical appliances, steel and machine manufacturing.
“Thai exports to China may drop, but exports to the US market may increase as Thai alternatives could replace Chinese products, but it remains to be seen,” said Pranee Sutthasri, senior director at the BOT’s macroeconomic department.
K-shaped economic recovery
The economic recovery in Thailand has been highly uneven now, reflecting a K-shaped trajectory, according to BOT officials. While tourism-related services are experiencing robust growth, other sectors, such as real estate, automobiles and other manufacturing, are grappling with major challenges.
Tourist arrivals are projected to rise to 39.5 million this year, up from 36 million last year, fueling growth in hospitality and related industries. However, sectors like automobile, steel, electronics, electrical appliances and machinery and parts face stiff competition from an influx of cheaper Chinese products, which could stifle recovery and growth.
Household debt and vulnerable groups
Household debt in Thailand saw a slight decline to 89 per cent of GDP in the third quarter of last year, but it remains high and poses a formidable obstacle to private consumption. High levels of debt can restrict consumer spending and negatively impact economic growth.
Moreover, income recovery among vulnerable groups remains stagnant, exacerbating inequalities and hindering collective economic progress. These vulnerable groups, who often engage in low-income jobs, do not benefit equally from the broader economic recovery, thereby perpetuating the K-shaped recovery pattern. Many of them have to borrow money to make ends meet, resulting in persisting indebtedness.
“While a study by the Bank for International Settlements found that a household debt-to-GDP ratio of above 80 per cent can hinder economic growth over time, we do not target household level but aim for an orderly debt deleveraging process,” says BOT deputy governor Piti Disyatat, referring to the latest efforts by the government and the BOT to tackle the problem of high household debt. The initiatives include interest rate exemption and suspension of a part of the principal debt for three years.
Impact of government spending and interest rate policy
Government spending is expected to be a crucial driver of the Thai economy in 2025, with public investment rising from 2.9 per cent to 5.1 per cent this year. The government has set its expenditure budget at 3.75 trillion baht and continues to run a fiscal deficit, estimated to be at 4.4 per cent of GDP for the current fiscal year that ends on September 30. It would maintain the deficit at 4.3 per cent of GDP with a total spending plan of 3.78 trillion baht for fiscal year 2026 due to start on October 1 this year, if approved by Parliament.
This increase in government expenditure, particularly in infrastructure and public service, should provide a substantial boost to economic activity. The effectiveness of this spending largely depends on how efficiently and in a timely manner the funds are utilized. “Government spending and extra economic stimulus such as cash transfer and tax credit for shopping would boost economic growth,” says Pranee.
Regarding monetary policy, the BOT has indicated that the current policy rate of 2.25 per cent is appropriate and neutral to economic conditions, encompassing growth, inflation, and financial stability. The BOT has maintained that monetary policy will remain unchanged unless there is a significant shift in economic conditions. This stability in interest rate aims to support economic growth while ensuring inflation remains under control with a stable financial system.
“If the inflation rate moves significantly, we are ready to change our policy stance,” says Sakkapob.
“Our monetary policy is robust and we can move either way. If there is an economic shock in the second half, we can further cut the policy rate ,” says Surach Tanboon, senior director at the BOT's monetary policy department.
“Our monetary policy approach is both data dependent and outlook dependent,” adds Piti.
The BOT also noted that Thailand's GDP growth was now nearing its potential growth rate, signifying a mature phase of economic development.
Private consumption and investment
Despite the overall positive outlook, private consumption, which has been a vital component of economic growth, is anticipated to slow down. Last year consumption grew 4.5 per cent, but growth is expected to slow down to 2.4 per cent this year. Despite this deceleration, it will remain one of the key drivers of the economy this year.
Private investment, after experiencing a contraction of 2.2 per cent last year, is forecast to grow by 2.2 per cent this year, reflecting renewed business confidence and investment activities, in line with soaring foreign direct investment applications for investment promotion under the Board of Investment program, according to central bank officials.
Exports and competitive pressures
Exports, the traditional backbone of Thailand's economy, are expected to grow by 2.7 per cent this year, down sharply from 4.9 per cent last year. This slowdown is partly attributed to global economic uncertainties and increased competition from other exporting nations, particularly China.
The local auto manufacturing and auto parts industries face significant pressure from the influx of cheaper Chinese electric vehicles, which continue to capture market share due to their cost advantages. Additionally, the potential relocation of more factories from China to Thailand, as businesses seek to avoid US trade restrictions, could provide both opportunities and challenges for the Thai manufacturing sector.
“Exports are expected to accelerate in the first half of the year, but it might slow down in the second half if the US government imposes tariffs on Thai exports,” according to Pranee.
Tourism and service sectors
Tourism remains one bright spot in Thailand's economic landscape. Tourist arrivals are projected to increase to 39.5 million, catching up with the pre-pandemic numbers in 2019, up from 36 million last year. This influx is expected to drive growth in tourism-related services, including hospitality, transportation, and retail sectors.
The continued recovery in tourism is vital for the overall economy, as it supports numerous jobs and generates significant revenue. The sustainability of this growth, however, depends on global travel trends and the management of any potential health crises.
Challenges vs opportunities
In summary, the Thai economy in 2025 faces a complex mix of potential growth and significant challenges. While the GDP growth rate shows modest improvement, the economy must navigate a series of threats, including geopolitical uncertainties, competitive pressures from Chinese goods, and high household debt levels.
The government's role in driving economic growth through increased public investment and stable monetary policy is crucial. The uneven K-shaped recovery, however, points to the stark differences between thriving tourism services and the struggling industrial sector.
Kasikorn Research Center has projected a 1.8 per cent contraction in loan growth last year — the first contraction in 15 years — and predicts slower loan growth this year. BOT officials predict that loan growth in the banking system will slow down as credit risks increase in some sectors, while the recovery in tourism-related sectors would lead to a low demand for bank loans.
