Thai Economy Under Threat: Political Instability and Global Headwinds Ring Alarm Bells

The Bank of Thailand warns of increasing risks to the nation's economic health, with domestic political uncertainty now a significant concern alongside global trade tensions

 

The Bank of Thailand (BOT) has identified four key factors escalating the risks to the Thai economy, with the escalating impact of domestic political stability now taking centre stage alongside looming US retaliatory tariffs.

 

Pranee Sutthasri, Senior Director of the Macroeconomic Department at the BOT, revealed that Thailand's economic activity is set to slow.

 

This deceleration follows a predicted weakening in momentum from the vital tourism and export sectors, though automotive production, particularly passenger cars, is showing promising signs of recovery. 

 

Moving forward, the central bank will maintain a close watch on several critical areas. 

 

These include the evolving trade policies of major global economies and ongoing developments within the tourism sector.

 

Furthermore, the bank will monitor the adaptability of businesses as they navigate intensified competition and shifts in consumer behaviour. Finally, both geopolitical risks and internal political factors will be under keen observation.

 


"Domestic political factors are among those the BOT will closely track in the period ahead," Pranee stated. "While future economic activity needs to be monitored, particularly tourism and goods exports which are trending downwards, business confidence in June 2025 increased across both manufacturing and non-manufacturing sectors. However, economic uncertainty remains a primary obstacle."


 

 

May Sees Modest Economic Dip

Thailand's economic and financial performance in May 2025 saw a slight slowdown from the previous month. This was driven by a dip in industrial production and services across trade, transport, and tourism. 



 

Industrial output fell by 0.6% month-on-month, notably in sectors such as food, beverages, electronics, and hard disk drives. This was partly due to earlier production surges to replenish inventories and a temporary impact from an oil refinery shutdown for maintenance.

 

Tourism continued its subdued performance, with receipts decreasing by 7% month-on-month. The number of foreign tourists declined by 2.9% from April to 2.3 million. 

 

This fall was particularly evident among high-spending, long-haul travellers from regions like Australia and Europe (excluding Russia). Conversely, short-haul visitor numbers from countries such as China, Malaysia, and Japan saw an increase.

 

Private investment dipped by 0.6% month-on-month after an earlier surge. Private consumption, however, remained largely stable, growing by a modest 0.2% month-on-month, driven by continued growth in durable goods while services declined. 

 

Consumer confidence fell for the fourth consecutive month, fuelled by concerns over unpredictable US trade policies, Thailand's sluggish economic recovery, and persistently high household and business debt.

 

Government spending contracted sharply by 18.9% year-on-year, affecting both routine expenditures and capital investments by the central government. 

 

This significant drop was largely due to a high comparison base from the previous year, when disbursements accelerated following the enactment of the 2024 Budget Act. 

 

Nonetheless, when compared to historical averages, central government current and investment expenditures still expanded year-on-year, boosted by payouts for pensions, personnel compensation, healthcare for civil servants, and infrastructure spending by transport agencies. 

  



 

Investment by state-owned enterprises saw a slight year-on-year contraction in energy infrastructure spending.

 

Despite these challenges, goods exports rose by 8.6% month-on-month and an impressive 17.6% year-on-year.

 

This was particularly strong in the electronics sector due to sustained global demand and a push to export ahead of US import tariff hikes.

 

The automotive sector, especially passenger cars, also showed signs of recovery with improvements in both production and domestic sales.

 

 

 

Inflation Eases, Baht Strengthens

Pranee reported that Thailand's headline inflation rate stood at -0.57%, a decrease from the previous month mainly due to lower fresh food prices. 

 

Energy inflation remained negative, similar to the prior month. Core inflation, however, saw a slight uptick to 1.09%, driven by ready-made food prices.

 

The labour market improved by 0.3% month-on-month, reflected in an increase in insured persons and a decrease in both total and new unemployment benefit claims.

 

Meanwhile, the current account registered a deficit of $300 million, influenced by the services, income, and transfers balance. However, this deficit narrowed from the previous month as the trade balance returned to a surplus. 

 

The Thai baht strengthened against the US dollar in May and June 2025, reaching 32.63 baht as of June 25, 2025. This appreciation was primarily driven by improving US trade policy developments. 

 

The BOT confirmed that the baht's current strength aligns with fundamental factors and other regional currencies, and it has intervened as necessary.

 


"The factors causing the baht to strengthen from external sources are primarily the weakening dollar, which has fallen to a 13-year low," Pranee explained. "People are beginning to sell dollars and hold other assets instead. We must continue to monitor these developments."


 

Dr Kobsak Pootrakool, Senior Executive Vice President and Corporate Secretary of Bangkok Bank, provided further insight into the broader Thai economic landscape. 

 

Late last year, Bangkok Bank projected a 3% economic growth, driven by exports, tourism, direct investment, and government stimulus.

 

However, in recent months, the bank has revised its forecast downwards to 2%, with a potential for growth to dip as low as 1.5% due to increasing downside risks. 

 

This is attributed to several economic drivers performing below target, especially exports and tourism, compounded by recent earthquakes and the potential impact of a 'Trump' trade war, alongside heightened political uncertainty. 

 

Dr Kobsak conceded that maintaining growth this year will be "difficult" and "not easy."

 

The main challenge stems from growing headwinds. Exports may not perform as well as initially expected; while the first half saw good growth due to accelerated exports to avoid tariffs, stock-building purchases might decrease in the second half, causing export momentum to fade.

 

 

 

Political Turmoil Dents Thai Tourism

The Thai economy's risks are further exacerbated by political uncertainty.

 

Domestic conflicts are making tourists hesitant to visit. Moreover, with increasingly fierce global competition, Thailand is no longer the premier tourist destination it once was, a stark contrast to Japan and Malaysia, which have seen rising tourist numbers.

 


"In the past, we've faced various impacts on the tourism sector, including tsunamis, bird flu, city burnings, and protests. However, all those events concluded within four months, and tourists returned," Dr Kobsak explained. "This time, after five months, tourists have not yet returned, and our tourism is now in negative territory. Therefore, recovery will be very challenging from now on."


 

 

Factory Closures and Restaurant Woes Feared

Additionally, Thailand's economic risks are tied to political issues and delays in policy implementation, which reduce the government's agility in driving initiatives. This political uncertainty makes businesses more hesitant to invest or conduct operations.

 

However, Dr Kobsak noted that it is still too early to fully assess the political factors' severity or their exact impact on the Thai economy. He highlighted that historically, Thailand's economy has often navigated political turbulence successfully.

 

"Economic growth at 2% is hard to accept and not easy to achieve because risks are increasing," Dr Kobsak concluded. "Abroad, Trump is ready to do unpredictable things. Geopolitical conflicts also carry high uncertainty, and tourism is worrying. Therefore, the country is currently a concern. If you ask businesspeople, amidst political uncertainty, they are probably afraid and might delay investments. Thus, we believe that in a worse-case scenario, the Thai economy could drop to 1.5%."

(2025/07/01-00:00)