CGS International Securities (CGSI) warns that Thailand’s economic prospects for the second half of 2025 are dimming, as a confluence of global and domestic challenges threaten to drag down growth. As the international trade environment deteriorates under a new wave of US tariffs and local economic drivers remain subdued, economists warn of a distinctly more fragile outlook than in recent years.
Global Crosscurrents and Tariff Overhang
The global economy is heading into choppier waters, with protectionist US trade policy at the forefront. The US decision to levy abrupt and far-reaching tariffs on its trading partners has already rattled global supply chains. While China has borne much of the brunt, key US allies such as the EU, Canada, and Mexico have not gone unscathed.
In the US itself, the hangover from recently elevated inflation has kept consumers cautious, leading to sluggish GDP growth in the first quarter of 2025. American producers, wary of potential trade escalation, rushed to frontload imports and build stockpiles earlier this year—providing a temporary boost to global trade, particularly for the export-driven economies of ASEAN. But that wave appears to be receding as the new tariffs begin to bite and US demand turns inward, casting a shadow over the export prospects for the region.
ASEAN and Thailand: Fading Support and New Risks
Without the lifeline of US frontloading, Thailand and its neighbors (notably Indonesia, Malaysia and Singapore) are expected to lose an important source of growth momentum. At home, chronic structural problems—such as weak consumer spending and sluggish private investment—continue to cap upside potential.
Compounding this, China’s search for alternative markets amid US tariffs could see an influx of underpriced Chinese goods into Southeast Asia, threatening to crowd out local manufacturers. Key ongoing US-ASEAN negotiations over reciprocal tariffs will be pivotal in shaping the future of regional supply chains and could trigger further shifts in trade patterns.
Gloomier Growth: 2025 GDP to Tread Water
Forecasts for Thailand’s economic growth remain tepid. CGS International Securities now expects GDP to expand by just 2.0% in 2025—a slight upward revision following a better-than-expected first quarter and a temporary US 90-day “tariff pause.” This reprieve will see Thailand facing 10% tariffs until July before possibly rising to 18% thereafter, pending ongoing talks. Small gains from government stimulus programs, such as the much-discussed digital wallet cash handout, have been diluted by implementation delays and the ingrained tendency of Thai households to save rather than spend.
Weak Consumption and the End of Cash Handouts
Thai private consumption, a critical engine of the economy, is likely to cool from an estimated 4% growth in 2024 to just 1.7% for 2025. In May, the government redirected 157 billion baht originally earmarked for additional cash handouts to broader economic stimulus measures. This shift comes in recognition of faltering consumer sentiment and aims to support the grassroots economy instead through infrastructure, tourism promotion, productivity upgrades, and village-level investment. The move underscores official skepticism about kick-starting growth through short-term cash injections and points to more muted consumption growth ahead.
Travel Recovery Stalls, Hit by Weak Chinese Demand
Tourism, another pillar of Thailand’s economy, is also expected to show cracks. Arrivals are forecast to fall 3% in 2025 to 34.5 million, mainly due to disappointing numbers from Chinese visitors. Once Thailand’s largest tourist group, Chinese travelers have been spooked by security incidents, including kidnappings near the Myanmar border. As a result, tourism receipts could shrink by as much as 180 billion baht in 2025—a potential drag of over 1% of GDP.
FDI Surge Masks Limited Spillovers
A silver lining has been the robust pace of foreign direct investment, with inflows up at least 20% year-on-year in 2025 following a 34% surge from January to May. However, the benefits are highly skewed. The bulk of new money is funneled into technology-heavy sectors like electric vehicles, medical devices, and semiconductors—with most investors importing their own advanced components and, often, foreign workers. Imports of capital and intermediate goods have soared, reflecting both the strength of FDI and a dependence on external supply chains. The influx, however, provides limited benefits to Thai workers or domestic supply networks, casting doubt on the inclusivity of this growth.
Fiscal Policy: More Uncertainty Than Impulse
Thailand’s FY2026 budget bill is proceeding on schedule, with public investment expected to edge up and support a 1.2% rise in gross fixed capital formation. Yet the government’s larger fiscal response still lacks direction: a hefty projected deficit stands in contrast to muted GDP forecasts, and details around new stimulus measures remain scarce. Continued political infighting within the ruling coalition further muddies the outlook for timely and effective policy action.
Exports and the Tariff Cliff
Exports—a vital growth driver—look set for a dip, with merchandise shipments forecast to contract 0.8% in 2025, even as imports rise 3.5%. Accelerated exports in early 2025, as local firms sought to beat the incoming tariff deadline, are unlikely to be repeated in the second half. Thailand has offered a five-point proposal to US trade negotiators, including greater cooperation in value-added food processing, increased purchases of US goods, and commitments to enforce rules of origin. While these measures are designed to stave off the steepest tariff hikes, risks remain: should trade talks falter, export momentum could fade sharply.
Inflation: Flatlining Amid Competitive Pressures
Inflation is likely to remain at 0% in 2025, flattened by discount competition from imported Chinese goods, capped utility prices (with the government fixing electricity at THB3.99/unit through year-end), and weaker oil prices (Brent crude forecast at $67.9/bbl). The high correlation between oil prices and headline inflation (historically around 0.75x) supports the outlook for subdued price pressures.
Monetary Policy Eases as Deflation Looms
Against a background of weak demand and stagnant prices, the Bank of Thailand is widely expected to continue easing into 2026. The central bank’s 1-day repo rate is seen falling to 1.25% by end-2025 and 1.00% in 2026, with the threat of deflation and tepid stimulus effects warranting ongoing monetary accommodation.
Baht to Slip as Fundamentals Reassert
Capital flows and a strong US dollar have recently buoyed the baht, but domestic political risks, fading export windfalls, and a normalization of trade volumes in the second half of 2025 are likely to weigh on the currency. The baht is projected to end the year at 34.25 to the US dollar, moving more in line with underlying economic realities.
