Global: Mounting Strains, Clock Ticking
The world economy faces fragile momentum, with tariff pressures, inventory buildup, and weak business confidence pointing to cautious growth ahead.
U.S.: Despite tariff delay, escalating trade tensions and policy uncertainty still weigh on growth momentum, supporting the Fed’s dovish tilt
Tariffs: Although the IEEPA-based universal and reciprocal tariffs face legal challenges, sector-specific tariffs under Section 232 remain legally viable for broader application
Amid escalating trade tensions, securing agreements is becoming increasingly urgent; trade deals are no longer just beneficial for partners—they're essential for the U.S. itself
Current Tariffs (as of July 7): 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.
High Reciprocal Tariffs Announced on July 7: Trump posted “letters” to 14 countries on July 7, threatening to hit Japan and Korea, among others, with higher reciprocal tariff rates of between 25-40%. In most cases, those rates were close to the original “Liberation Day” levels.
Eurozone: Mounting external risks and domestic headwinds threaten its economic recovery in 2H25; more rate cuts are likely.
Japan: Policy support should tame inflation in 2H25; trade tensions cloud economic outlook and dampen rate hike prospects.
China: Excess supply and trade war risks could weigh on 2H25 growth; trade-in subsidies continue to stimulate demand in the short term.
Thailand: Growth momentum faces mounting risk in 2H25 as tariff impacts materialize and political clock ticks
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Deeper tariff impact, domestic political uncertainty, slow tourism recovery, and structural headwinds heighten risk of a negative feedback loop.
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In our base case, assuming a 20% US tariffs on Thai goods, 2025 GDP growth is expected to slow to 2.1%.
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In 2H25, we expect economic growth to decelerate markedly to 1.4% from an estimated 2.9% in the first half of this year.
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This slowdown is mainly attributed to a potential contraction of exports caused by the realized impact of U.S. tariff hikes. Full-year growth may weaken sharply to 3.5% from a double-digit growth in the first five months of 2025.
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Tourist arrivals have also been revised downward to 34 million, mainly due to a slower-than-expected recovery in Chinese inbound travelers.
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In addition, heightened domestic political uncertainty may undermine confidence and suppress domestic spending.
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In the worse-case scenario, assuming that the U.S. imposes a full reciprocal tariff as announced on April 2 on Thai goods, or Thailand fares less favorably than its competitors in trade negotiations and faces relatively steeper tariffs, Thai export growth this year would be hit hard. In this case, 2025 GDP growth would soften to 1.5%. Global economic headwinds would also weigh on tourism. If the rising political uncertainty caused delays in domestic policy implementation, GDP growth could weaken even further.
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The weaker economic growth and subdued inflationary pressure suggest further monetary easing. In our Main Scenario, we expect the policy rate to be reduced to 1.25% p.a. by year-end. In the worse-case Scenarios, with a higher risk of economic recession, the policy rate could fall further.
Krungsri Research Forecasts for 2025
2H25 Outlook: Growth momentum to deteriorate on realized tariff impacts and political uncertainty
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In our base case, assuming a 20% US tariffs on Thai goods, we project Thai GDP growth to slow to 2.1% in 2025, reflecting weakened growth momentum, particularly in private consumption and declining private investment, amid ongoing tariff-related uncertainties. Tourist arrivals have also been revised downward to 34 million, mainly due to a slower-than-expected recovery in Chinese inbound travelers. In 2H25, we expect economic growth to decelerate markedly to 1.4%, from an estimated 2.9% in the first half of this year. This slowdown is mainly attributed to a potential contraction of exports caused by the realized impact of U.S. tariff hikes. In addition, heightened domestic political uncertainty may undermine confidence and suppress domestic spending.
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In the worse-case scenario, assuming that the US imposes a full reciprocal tariff as announced on April 2 on Thai goods, or Thailand fares less favorably than its competitors in trade negotiations and faces relatively steeper tariffs, Thai export growth this year would be hit hard. In this case, 2025 GDP growth would soften to 1.5%. Global economic headwinds would also weigh on tourism. If the rising political uncertainty caused delays in domestic policy implementation, GDP growth could weaken even further.
Exports reached a record high in May and posted a double-digit growth in the first five months of 2025; Full-year growth may weaken sharply to 3.5%
Strong export growth to the U.S. was driven by a front-loading effect ahead of elevated 36% U.S. tariffs on Thai goods.
In the first five months of 2025, Thai exports grew by 14.9% YoY (based on MOC data), led by industrial products, which expanded by 19.6% (including computers & components, electronic integrated circuits, and electrical appliances), and agro-industrial products which expanded by 5.2% (such as pet food and fresh, chilled, frozen, and processed chicken). However, exports of agricultural products decreased by -3.7%, led by rice and tapioca products. Notably, exports to the U.S. grew sharply by 27.2%, led by computers & parts, electronic integrated circuits, plastic products, and chemical products. In May, imports from China continued to rise by 35.3% to reach a record high.
U.S. sets 36% tariff on Thailand—one of the highest; Thai tariff cut offers remain cautious despite hope for deal before August 1 deadline
On July 7, President Donald Trump issued formal letters to Thailand and 13 other countries, notifying them of upcoming reciprocal tariffs set to take effect on August 1—unless new trade agreements are reached. Thailand faces a potential 36% tariff, one of the highest among U.S. trading partners, and notably higher than regional competitors such as Vietnam, which secured a reduced rate of 20% (and 40% for suspected transshipped goods) through an earlier deal. These letters were intended to pressure targeted countries into accelerating trade talks and addressing trade imbalances, including reducing both tariff and non-tariff barriers.
A 20% U.S. tariff on Thai goods would lead to export losses 9 times smaller than under the 36% scenario, but Thailand risks ‘Twin Influx’ if offering zero tariff on all U.S. goods.
If Thai exports are subjected to a 36% U.S. tariff, Krungsri Research estimates that Thailand could face export losses of THB 162.1 bn. However, if the U.S. imposes a 20% tariff on Thai goods while Thailand imposes zero tariffs on U.S. goods, the impact on Thai exports would be significantly smaller—about 9.3 times less—resulting in estimated export losses of THB 17.4 bn. Nonetheless, offering zero tariffs to the U.S. could alleviate one problem while creating another—specifically, the risk of a surge in imports from the U.S. According to our model, in the long term, Thailand’s imports from the U.S. could increase by as much as 27%, equivalent to THB 188.3 bn.
Tourism: Foreign tourism revenue and arrivals posted a year-on-year contraction in 1H25; Full-year forecast is slashed to 34 mn.
In June 2025, Thailand welcomed 2.32 mn foreign tourists, marking the first monthly increase in five months. However, arrivals were still down -15.2% YoY. Tourism revenue for the month totaled THB 99.0 bn, down -20.3% YoY. For the first half of 2025, total foreign tourist arrivals stood at 16.2 mn, (-4.7% YoY), generating THB 772 bn in revenue (-2.3%). The decline was primarily due to Chinese tourist arrivals, which declined sharply by -34.1% YoY to only 2.27 mn, accounting for just 40% of the pre-COVID level in 2019. The slower-than-expected recovery of foreign tourism in 1H25, combined with a weakening global economy, may affect future travel demand. As a result, we have revised down our forecast for foreign tourist arrivals in 2025 to 34 mn, from the previous estimate of 36.5 mn.
Private investment: Softening momentum amid external and domestic headwinds
In May, the Private Investment Index increased by 7.9% YoY, but after seasonal adjustment, it declined by -0.6% MoM. Meanwhile, manufacturing production continued to recover for the second consecutive month, driven by increased production to restock inventories following a surge in exports during the first half of the year. Looking ahead, despite stimulus measures such as infrastructure investment worth THB 85 bn, private investment in the second half of the year would be weighed by uncertainty over U.S. tariff hikes, concerns about domestic political stability, and weakness in the services sector stemming from a slower-than-expected recovery in tourism.
Private consumption remains under pressure from weak confidence, fragile economic conditions, and structural challenges despite support from domestic tourism stimulus
In May, the Private Consumption Index (PCI) rose slightly by 1.4% YoY, dampened by a slowdown in service spending, particularly in hotels and restaurants, and a contraction in non-durable goods consumption. Looking ahead, while private consumption in the second half of the year may benefit from the government’s program to boost domestic tourism, such as the “Half-Half Co-Payment for Tourism” scheme, several challenges remain. These include:(i) the impacts of U.S. tariff hikes and sluggish tourism sector on employment and income; (ii) still-weak consumer confidence; (iii) a potential decline in farm incomes due to lower agricultural prices; and (iv) structural issues from high household debt.
Government spending faces rising risks from domestic political uncertainty, potentially delaying the FY2026 budget bill and other key policy actions
In the third quarter of FY2025 (April-June), disbursement of both the current and capital budgets declined by -27.5% and -28.1% YoY, respectively. For the first nine months of FY2025 (October 2024 to June 2025), disbursement of the current budget accounted for 83.9% of the annual budget, but the disbursement of the capital budget accounted for only 38.2% of the annual budget. Domestic political uncertainties raise concerns about a delay in key policy actions, including the approval of the FY2026 budget bill, which could negatively affect government spending and act as a headwind to economic growth in the final quarter of 2025 through the year 2026.
Inflation likely to remain negative in 3Q25, following -0.35% in 2Q25, amid weak domestic demand and government subsidies
MPC is expected to cut the rate twice this year to 1.25% from 1.75%, amid growing economic weakness and rising domestic and external pressures
Key factors in 2H25: Deeper tariff impact, domestic political uncertainty, slow tourism recovery, and structural headwinds heighten risk of a negative feedback loop