Global: Hidden headwinds and rising risks
A trade truce lifts market sentiment, but weakening manufacturing could weigh on global trade and exports, especially with lingering tariff effects and hidden trade policy risks
US: While trade talks fuel optimism, tariff impacts and hidden headwinds could lead to an economic slowdown; more accommodative monetary policy expected in 2H25
Under Trump’s presidency, a series of tariff hikes could still intensify trade war though the US trade court suspended, and later reinstated, reciprocal and fentanyl-related tariffs imposed under the IEEPA
Even without reciprocal tariffs, export losses resulting from US tariffs on greater range of specific products could be comparable to those incurred under the current tariff policy
Current Tariffs: The US imposes 30% tariffs on imports from China and 10% tariffs on imports from nearly all countries (excl. some goods). China imposes a 10% tariff on US imports. The US also imposes a 50% tariff on all steel and aluminum, and a 25% tariff on all autos & parts.
25-50% Tariffs on Specific Products: Despite no reciprocal tariffs, the US imposes a 25% tariff on specificSemiconductors, lumber, and certain critical minerals, and impose a 50% tariff on steel & aluminum.
50% Tariffs on Specific Products: Despite no reciprocal tariffs, the US imposes a 50% tariff on specific products, including steel & aluminum, autos & parts, copper, pharmaceuticals, semiconductors, lumber, and certain critical minerals.
For Thai exports, losses in several sectors resulting from US tariffs on greater range of specific products could be worse than those incurred under the current tariffs
Current Tariffs: The US imposes 30% tariffs on imports from China and 10% tariffs on imports from nearly all countries (excl. some goods). China imposes a 10% tariff on US imports. The US also imposes a 50% tariff on all steel and aluminum, and a 25% tariff on all autos & parts.
25-50% Tariffs on Specific Products: Despite no reciprocal tariffs, the US imposes a 25% tariff on specific products, including autos & parts, copper, pharmaceuticals, Semiconductors, lumber, and certain critical minerals, and impose a 50% tariff on steel & aluminum.
50% Tariffs on Specific Products: Despite no reciprocal tariffs, the US imposes a 50% tariff on specific products, including steel & aluminum, autos & parts, copper, pharmaceuticals, semiconductors, lumber, and certain critical minerals.
Eurozone: Despite lower recession risk, low growth is still likely due to ongoing trade tensions and structural challenges; ECB nears end of its monetary easing cycle
Japan: Services sector is expected to support the economy in 2H25, but rising trade risks may weigh on manufacturing, keeping overall growth subdued
China: Despite trade truce and favorable US court ruling, trade war risks remain and could weigh on growth; fiscal stimulus still needed to sustain 2H25 growth
Israel-Iran conflict escalates; oil market faces uncertainty amid rising geopolitical tensions
The Middle East conflict and the Thai Economy: Conflict in the Middle East can affect economic activities through the demand side, the production channel, and financial markets
- Conflict in the Middle East can impact economic activities through three primary channels: i) demand side, resulting from disrupted trade, tourism, and investment; ii) supply side, where rising oil prices can lead to higher production costs, inflation, and a subsequent decline in purchasing power and investment demand. Indirectly, it will also weaken consumer and business sentiment. In the worse case (scenario 2-4), it could lead to global supply chain disruptions; iii) financial markets, as rising tensions and uncertainties often amplify volatility, leading to risk-off sentiment.
- The impact on the Thai economy depends on the intensity and duration of the conflict. Given the current situation, the primary effect is from the supply side due to the increase in oil prices. Effects from financial markets are relatively limited, given Thailand's resilient external stability. In the worse-case scenarios (scenario 2-4), however, tightening financial conditions could eventually impact monetary policy and the economy.
Thailand: Hidden US tariff risks and beneath-the-surface structural headwinds
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Given the continued uncertainty surrounding the US tariff policy, Krungsri Research has developed two scenarios for our projections:
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Reference Scenario (or main scenario) This scenario assumes the status quo—10% US tariffs on nearly all countries, including Thailand, and 30% on China. Under this assumption, we project GDP growth slowing to 2.1% in 2025. The impact on Thai exports would remain relatively contained. The economic slowdown also reflects weak growth momentum, particularly in private consumption and declining private investment, amid ongoing tariff-related uncertainties.
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Alternative Scenario This scenario assumes a more adverse outcome: the US imposes a full reciprocal tariff as announced on April 2 on all countries (e.g., 36% on imports from Thailand), or Thailand fares less favorably than its competitors in trade negotiations and faces relatively steeper tariffs. Under this scenario, 2025 GDP growth would soften to 1.5%. Thai export growth this year would be close to zero, and investment records a bigger decline.
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The softer economic growth and subdued inflationary pressure suggest further monetary easing. In the Reference Scenario, we expect the policy rate to be reduced to 1.25-1.50% p.a. by year-end (1-2 more cuts). In the Alternative Scenario, with a higher risk of economic recession, the policy rate could fall further to 0.75% p.a. by end-2025 (4 additional cuts).
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Key risk factors to our outlook include:
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US tariff policy and progress in trade negotiations
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International political and geopolitical developments
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Thailand’s policy uncertainty with limited fiscal space
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Structural challenges such as declining manufacturing competitiveness, high household debt, and aged demographics.
Krungsri Research Forecasts for 2025
2025 GDP Outlook: Reference scenario projected at 2.1% with current tariffs, 1.5% under escalating trade tensions — a scenario-ception driven by tariff risks
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In our Reference Scenario (or main scenario), assuming the status quo—10% US tariffs on nearly all countries, including Thailand, and 30% on China, the impact on Thai exports would remain relatively contained. We project GDP growth slowing to 2.1% in 2025, reflecting weak growth momentum, particularly in private consumption and declining private investment, amid ongoing tariff-related uncertainties. Tourist arrivals have also been revised downward to 36.5 million, mainly due to a slower-than-expected recovery in Chinese inbound travelers.
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For Alternative Scenario, assuming that the US imposes a full reciprocal tariff as announced on April 2 on all countries (e.g., 36% on imports from Thailand), or Thailand fares less favorably than its competitors in trade negotiations and faces relatively steeper tariffs, Thai export growth this year would be close to zero, investment recorded a bigger decline, and 2025 GDP growth would soften to 1.5%. Global economic headwinds would also weigh on tourism, limiting arrivals to 35.5 million, roughly unchanged from last year.
Exports in April posted double-digit growth for the 4th straight month, but starting to show fading momentum; uncertainties over US tariffs threaten the outlook
2025 Export Outlook: Reference scenario projected 2.0% growth with current tariffs, 0% under escalating trade tensions
In the first four months of 2025, Thai exports grew 14.0% YoY (based on MOC data), led by Industrial products, which expanded by 18.7% (including computers & components, electronic integrated circuits, and electrical appliances), agro-industrial products which expanded by 3.8% (such as pet food and fresh, chilled, frozen, and processed chicken). However, exports of agricultural products decreased by -7.3%, led by rice and cassava products. Also, exports of cars and parts continued to contract. The impending US tariff hikes present a major downside risk. Thai exporters front-loaded shipments ahead of the tariffs, but this short-term boost may fade. The WTO now projects a 0.2% decline in global trade for 2025, reversing its earlier 3.0% growth forecast. Krungsri Research expects 2025 export growth at 2.0% with current tariffs and 0% under high reciprocal tariffs.
Tourism outlook: Recovery stalls with lower Chinese tourists; 2025 forecast of tourist arrivals revised down to 36.5 mn in our main scenario and 35.5 mn in the worse case
In May 2025, Thailand welcomed 2.27 mn foreign tourists, marking the fourth consecutive monthly decline and the lowest level since November 2023 (dropped -13.9% YoY). The top tourists were Malaysia, China, and India. Tourism revenue for the month totaled THB 95.8 bn, down -18.5% YoY. For during January to May, total foreign tourist arrivals stood at 14.4 mn, (-2.7% YoY), generating THB 676 bn in revenue (-4.7%). The decline was primarily due to the slow recovery of Chinese tourists (only 41% of pre-COVID levels). The tourism recovery remains weak and may provide only limited support to the Thai economy this year. Our forecast of tourist arrivals in 2025 was revised downward to 36.5 mn from the slower-than-expected recovery in Chinese inbound travelers due to safety concerns and rising competition. In the worse case, global economic headwinds would also weigh on tourism, limiting arrivals to 35.5 mn, roughly unchanged from last year.
Private investment outlook: Manufacturing temporarily rebounds and services remain weak; 2025 growth expected at -0.5% under current tariffs, potentially falling to -2.2% with higher tariffs
In April, the Private Investment Index accelerated by 16.9% YoY, driven by increased investment in machinery and equipment, in line with a rebound in manufacturing production. This may partly reflect a short-term boost from restocking production, following front-loaded exports in the previous period to avoid potential impacts from US import tariff hikes. However, persistent uncertainty surrounding US trade tariff policies continues to weigh on business sentiment. Private investment is expected to remain sluggish this year, with a projected contraction of -0.5% under the reference scenario, and a deeper decline of -2.2% in the case of high reciprocal tariffs.
Private consumption outlook faces several headwinds; 2025 growth expected at 2.6% but high tariffs could drag it down to 2.1%
In April, the Private Consumption Index (PCI) contracted by -4.0% YoY, marking the first decline in 16 months. The contraction was driven by reduced spending across several categories, particularly in services related to hotels and restaurants, reflecting both lower domestic spending by Thais and outbound travel. Private consumption is likely to face mounting pressure from several headwinds: (i) US tariff hikes and slow tourism recovery which could affect employment and income; (ii) weak consumer confidence index (CCI); (iii) falling farm incomes due to lower agricultural prices; and (iv) high household debt. Under the reference scenario, private consumption is expected to grow by 2.6%. In case of higher tariffs, which could significantly impact employment in export-related manufacturing, private consumption growth could slow further to 2.1% in 2025.
Government spending: Monitor accelerated capital disbursement and reallocation of THB 157 bn stimulus program in remaining FY2025
Preliminary data from the Ministry of Finance indicates that in May, disbursement of the current budget and capital budget declined by -51% and -60% YoY, respectively. However, in the first eight months of FY2025 (October 2024 to May 2025), disbursement of the current budget increased 3.7% YoY to THB 2.07 trn, accounting for 74.5% of the annual budget. For the capital budget, the government’s disbursement increased 47% YoY to THB 0.33 trn, but accounting for only 33.7% of the annual budget. For the THB 157 bn budget for stimulus measures, the government has reallocated funds from the digital wallet scheme to support small- and medium-scale infrastructure projects, boost domestic tourism, and assist exporters affected by US import tariff measures. The revised plan is set to be reviewed and approved in June.
Soft Inflation and US tariff policy risks may prompt further monetary easing in 2H25; BOT may cut rates 1–2 times under reference scenario, with 0.75% possible in worst-case
Structural challenges undermine Thailand’s long-term economic potential
Thailand's economy is facing mounting pressures from both external and domestic factors. Externally, uncertainty surrounding the US tariff hikes continues to pose a major risk, undermining business and investor confidence. Domestically, structural challenges include persistently high household debt, a rapidly aging population, and weaker competitiveness in several key industries. In addition, Thailand saw relatively low levels of foreign direct investment (FDI) compared to neighboring ASEAN countries. These domestic structural challenges are constraining the country’s long-term growth potential. Without substantial structural reforms, Thailand’s competitiveness could gradually deteriorate.
Key factors in 2H25: Deeper tariff impact, slow tourism recovery, limited policy space and structural headwinds heighten risk of a negative feedback loop; 2H25 GDP may fall to 1.4%