Thailand's economic outlook is facing significant challenges, as a recent analysis by Krungthai COMPASS indicates that the ongoing trade war could push the country into a technical recession in the latter half of 2025. The report highlights that the uncertainty around trade policies and rising risks are expected to have a substantial impact on Thailand's GDP, particularly among small and medium-sized enterprises (SMEs).
According to Krungthai COMPASS, approximately 4,990 Thai SMEs are projected to be directly affected by additional U.S. tariffs, especially those involved in exporting automotive parts, steel, aluminum, and electrical appliances. This surge in trade barriers is anticipated to hinder economic growth, which is now forecasted to be around 2.0% for 2025. However, if the effects of the trade war are severe, growth could plummet to as low as 0.7%, a drastic reduction from previous estimates of 2.7%.
On April 30, 2025, the Monetary Policy Committee (MPC) of Thailand's central bank took action to mitigate the economic downturn by cutting the policy interest rate by 0.25%, lowering it to 1.75%. This decision was made in response to the deteriorating economic conditions and the need to stimulate growth. The MPC also revised its economic growth forecast for Thailand in 2025, now ranging between 1.3% and 2.0%. Analysts from various economic research centers, including Kasikorn Research Center and SCB EIC, echoed this sentiment, predicting growth rates of 1.4% and 1.5%, respectively.
However, the Krungthai COMPASS analysis warns that if reciprocal tariffs imposed by the U.S. remain high, Thailand's economy could face even greater challenges. In a scenario where the economy grows by only 1.3%, the tariffs would need to be halved from 36% to 18% to foster any significant recovery. The potential for an economic "scar" is also a concern, with estimates suggesting that Thailand could lose economic opportunities worth 1.6 trillion baht over the next five years due to the ongoing trade conflict.
Looking ahead, the economic landscape for 2026 appears bleak, with projections indicating that growth could stagnate at around 1% or even dip below zero. This grim outlook has led many economists to agree that further interest rate cuts will be necessary in the coming months. The MPC is expected to take additional measures to lower rates, potentially by one or two more times this year, as the effects of U.S. trade policies become clearer.
Despite the potential for further rate cuts, there are concerns about the effectiveness of such measures. If banks do not pass on the reduced rates to consumers quickly, the intended benefits of monetary easing may not materialize. The challenge lies in ensuring that financial liquidity is distributed effectively across the economy, allowing businesses and consumers to benefit from the lower rates.
As Thailand navigates these turbulent economic waters, the focus will remain on how the government and financial institutions respond to the ongoing challenges posed by international trade dynamics. With the looming threat of recession and the potential for long-term economic scars, the need for strategic policy decisions has never been more pressing.
In summary, the combination of rising tariffs, a slowing global economy, and internal financial pressures is creating a perfect storm for Thailand's economic landscape in 2025 and beyond. As the country braces for the impacts of these factors, the hope is that timely and effective policy measures will help mitigate the damage and steer Thailand back towards a path of sustainable growth.
