Thai Industry Urged to Adapt as Economic Headwinds Gather

Ministry outlines six strategies to navigate US Tariff talks and domestic challenges

 

Thailand's industrial sector faces a challenging second half of the year, with looming US import tariff negotiations and persistent domestic issues such as political instability and high household debt. 

 

The Office of Industrial Economics (OIE), Industry Ministry, is urging businesses to adapt, outlining six key strategies to weather these economic headwinds.

 

OIE Director-General Passakorn Chairat acknowledged that while the overall economic picture appears positive, industry is grappling with several uncertainties. 

 

The potential for increased US import tariffs is a significant concern, threatening to slow international trade. 

 

Compounding this, industrial confidence dipped in May due to several negative factors:

Strong Thai Baht: This is eroding the competitiveness of Thai exporters.

Influx of Cheap Imports: Notably, inexpensive Chinese products are flooding new markets, including Thailand, after facing US tariffs, intensifying domestic competition.

Stagnant Private Consumption: High household debt is making consumers cautious with their spending, directly impacting industrial goods sales.

Tourism Slowdown: Issues like call centre scams, the March earthquake, China's promotion of domestic tourism, and the perception that Thailand is a more expensive destination than rivals are all dragging down the vital tourism sector. 

Passakorn highlighted that tariff negotiations with the US, led by Deputy Prime Minister and Finance Minister Pichai Chunhavajira, will be crucial. 

 

While Thai car exports to the US are not substantial, an overall tariff rate below 10% would be beneficial. However, a worst-case scenario of US tariffs reaching 36% could impact Thailand's industrial GDP by up to 1.02%.

 


"The government is negotiating flat out to minimise the impact," Passakorn stated. "We expect the Manufacturing Production Index (MPI) for June to still show growth, driven by accelerated orders before the US tariffs come into play and continued strong performance in the automotive industry."


 

Despite a 0.29% contraction in the first five months of 2025, the OIE maintains its full-year MPI forecast at 0.5-1.0%. 

 

This projection is underpinned by continued strength in automotive production and some export sectors, particularly those compensating for EV demand. 

 

The outcome of the US tariff talks will be a key factor influencing investor confidence, requiring close monitoring in the coming month.

  



 

Adapting to the New Economic Reality

The OIE recently convened with various economic agencies, where the private sector pressed the government for a swift response to the looming challenges. 

 

Several institutions have already downgraded their GDP forecasts, with the National Economic and Social Development Council (NESDC) revising its projection from 2.8% to 1.8%.

 


"The main risks for the second half, including the US tariffs, are still highly unpredictable," Passakorn warned. "Geopolitical conflicts, despite some easing in the Middle East and the Russia-Ukraine war, remain a watchpoint. Furthermore, the deluge of foreign goods will continue as countries hit by US tariffs seek new markets, leading to more low-priced products entering Thailand."


 

Domestically, a fragile economy and elevated household debt are contributing to reduced consumption. 

 

The decline in foreign tourist arrivals due to safety concerns and China's domestic tourism policies also presents ongoing challenges.

 

To help businesses navigate this complex landscape, the OIE and private sector have proposed six strategies for adaptation:

Seek New Markets: Explore both online and offline opportunities in areas like the Halal market, Central Asia, the Middle East (e.g., Kazakhstan, Oman), and expand into Muslim-majority nations, including Indonesia, Malaysia, and China.

Boost Production Efficiency: Invest in technology to cut costs and enhance manufacturing capabilities.

Uphold Standards and Trust: Emphasise the renowned quality of "Made in Thailand" products to maintain global credibility.

Innovate and Differentiate: Focus on sectors catering to an ageing society (health, herbal products, healthy food) and pet-related industries, finding unique selling points in an evolving market.

Strengthen Supply Chain Collaboration: Build more robust and resilient supply chains.

Monitor Government Measures: Stay informed about and leverage available government support policies.

 

"Thai industry must closely monitor the US negotiations in the latter half of the year, while simultaneously adapting to cut costs and seize new opportunities amidst continued global economic volatility," Passakorn concluded.

(2025/07/06-00:00)