Mitihoon – Dr. Amonthep Chawla, Senior Executive Vice President, Head of CIMB THAI Research Office of CIMB THAI Bank stated that Thailand is entering the second half of the “Year of the Serpent” 2025 with intense heat. But this heat doesn’t come from a powerful economic engine propelling growth forward—it’s quite the opposite. We are likely to face mounting pressures that could drag down the economy’s momentum, putting growth at risk in the latter half of the year.
While the Bank of Thailand (BOT) has revised its growth forecast upward from 2.0% to 2.3%, our research office maintains our projection at 1.8%. The central bank’s upgrade reflects stronger-than-expected momentum in the first quarter, where GDP expanded by 3.1% year-on-year (yoy), along with a solid rebound in exports in recent months. However, when looking at second-quarter conditions and the outlook for the third quarter, we remain cautious about the pace of recovery.
Rising political tensions—both domestic and global—are weighing on sentiment and could further undermine confidence going forward. In addition to keeping our growth forecast unchanged, we also anticipate that the Monetary Policy Committee (MPC) will cut the policy interest rate to 1.50% by the end of Q3, and further down to 1.25% by year-end.
As for the Thai baht, we expect it to hover around 32.90 USD/THB by the end of the third quarter and weaken slightly to 33.30 USD/THB by year-end.
Signs of an Economic Halt in Thailand
We urge caution against celebrating the 3.1% GDP growth in the first quarter. That figure was driven by special factors—namely, government cash handouts and a front-loading of exports to the U.S. ahead of new tariff measures.
By the second quarter, however, risks began to surface more clearly—from escalating trade tensions, the conflict in the Middle East, and growing concerns over domestic political stability.
We now expect that the Thai economy may not grow at all on a quarter-on-quarter basis (seasonally adjusted) in Q2. Still, on a year-on-year basis, GDP is likely to expand by around 2.2%. The National Economic and Social Development Council (NESDC) is set to release the official Q2 economic figures on August 18.
Looking ahead, we believe the Thai economy is entering a prolonged period of stagnation—registering no growth on a quarter-on-quarter basis for the remainder of the year. As a result, year-on-year growth in the third and fourth quarters will likely slow to just 1.1% and 0.7%, respectively. This would bring full-year GDP growth for 2025 to only 1.8%, down from 2.5% last year
Earthquake Triggers Prolonged Construction Slowdown
The prominent risk began with the earthquake at the end of March, whose damage we initially underestimated. At first, we believed the impact would be temporary—affecting sentiment but not causing lasting harm. However, it has become clear that the event significantly disrupted residential construction, particularly condominium projects, many of which came to a halt or saw few new launches in the second quarter. This slowdown is expected to persist through the third quarter.
The drag stems from shaken confidence in high-rise buildings, heightened concerns over credit risk, developers’ liquidity constraints, and a glut of unsold inventory in the market. On the demand side, mortgage rejection rates remain high for end-users, while foreign demand—which was once a key driver of the condominium market—has dwindled amid global economic volatility.
As a result, private sector construction is likely to continue contracting throughout the year, weighing on employment and related industries. A price war in the housing market may also emerge, with developers slashing prices to offload unsold units and preserve cash flow. This could depress overall property prices and potentially affect loan quality going forward.
That said, there are still pockets of opportunity. Condominiums intended for rental investment may offer decent returns if located in prime areas—such as those near main mass transit lines like the Green or Blue Line, or in central and mid-city zones. Units priced under 3 million baht could still be attractive to investors. For owner-occupiers, properties along transit lines priced between 3–5 million baht per unit may also be a good option. These units are less likely to be caught in the price war and generally face fewer financing difficulties.
As for low-rise housing—such as single detached homes and townhouses—while they have not been directly affected by the earthquake like condominiums, the market trend remains similarly weak. Demand has been declining since late 2024, contributing to an overall market downturn.
Nonetheless, there may be some resilience in the industrial construction segment—factories, industrial estates, and warehouses—which could still hold up. This is supported by positive momentum in foreign direct investment (FDI) during the first quarter, which continued from the previous year. This sector may offer a glimmer of hope for private construction amid a deeply concerning outlook for the residential real estate market, which is unlikely to recover in the near term
New Car Market Remains Trapped in a Slump
New car sales are expected to continue declining from last year. Sales of passenger vehicles are projected to reach around 530,000 units this year, down from 572,675 units in 2024. Domestic purchasing power remains weak, and credit conditions are tightening due to rising credit risks among borrowers.
Meanwhile, electric vehicle (EV) sales are expected to account for about 14% of total passenger car sales, and this share is likely to continue rising—especially if internal combustion engine (ICE) vehicle sales contract more sharply than EVs. One key factor to monitor is whether the ongoing EV price war will persist throughout the year. If it does, it could further erode ICE vehicle sales, as consumers may lose interest in traditional cars when EVs offer more attractive value.
The used car market also faces challenges, with subdued sales likely. Many consumers are opting to keep their existing cars longer or postpone upgrading to a new one, especially given tighter credit screening.
That said, there are still opportunities in the used car market—particularly for vehicles under five years old. Consumers with limited purchasing power may prefer secondhand cars over new ones due to lower prices. This segment still shows potential, especially among salaried workers and creditworthy buyers who are able and willing to borrow just enough to meet their needs.
Tourism – The Hidden Force in the Recovery
Chinese tourists have dropped by around 40% in the first five months of the year. Meanwhile, arrivals from Malaysia have also begun to decline. Although visitors from India and Russia have been increasing and are now visiting Thailand in higher numbers than before the pandemic, their growth still cannot offset the sharp drop in Chinese tourist arrivals.
Overall, we forecast total international tourist arrivals to reach 35 million this year, down slightly from 35.5 million in 2024. While spending per head has increased, helping to keep tourism revenue relatively stable, tourism is no longer a strong growth engine for the Thai economy.
We expect Bangkok to be most affected, followed by Pattaya and Chiang Mai, as these are key destinations for Chinese tourists. In contrast, southern provinces like Phuket, Krabi, and Samui may continue to see recovery later in the year, particularly during the European high season. However, during the low season in the third quarter, tourism activity in these areas may remain flat.
The lack of growth in tourism revenue is likely to negatively impact sectors such as hotels, restaurants, food and beverage, transportation, and retail and wholesale trade. These sectors are facing intensifying competition alongside rising costs, including wages (which may increase further in the near future).
Government measures promoting tourism in secondary cities may only serve to cushion the downturn, especially if they can tap into the domestic tourist segment, which tends to spend less but could help partially offset the loss of Chinese tour groups. In this environment, three-star and budget hotels may benefit most.
Still, the key to revitalizing the tourism sector lies in rebuilding traveler confidence. This includes ensuring safety, improving law enforcement against crimes targeting tourists, expanding international flight routes, and easing visa restrictions.
Political Uncertainty Weighs on Thailand’s Economy Following PM’s Temporary Suspension
Political uncertainty is increasingly pressuring Thailand’s economy in three key areas:
- Deteriorating Private Sector Confidence:
Both domestic and foreign investors are holding back on new investments. Private sector players are likely to become more cautious, especially for projects dependent on government budgets—particularly in the construction sector. However, if the government manages to maintain stability and policy continuity, the loss of confidence may remain limited. That said, watch for potential risks to political stability if coalition parties face internal pressure to reconsider their stance or withdraw from the government, which could eventually lead to a House dissolution. For now, this is not an immediate short-term risk.
- Constraints on Economic Policy Implementation:
While the PM’s temporary suspension is unlikely to affect the disbursement of the current fiscal budget or the rollout of stimulus measures—since the government remains fully empowered and is not in a caretaker status—there is a risk that consumer confidence could weaken, reducing the effectiveness of fiscal injections into the economy. Deputy Prime Ministers can still push forward with various projects. However, if the situation escalates toward a House dissolution, delays in the 2026 budget process could hurt the economy from Q4 this year through Q2 next year.
- Impact on International Trade Negotiations:
There are concerns over ongoing negotiations with the United States, especially Thailand’s efforts to secure lower US import tariffs. While immediate impacts are unlikely and scheduled talks should proceed as planned, there is growing worry that the US may leverage Thailand’s political instability as a bargaining chip in trade negotiations.
Way Forward:
The government urgently needs to clarify leadership transition plans by demonstrating clear vision and actionable strategies to prevent politics from becoming a drag on Thailand’s economic recovery during this critical period.
Trump Causes Global Turbulence (Once Again)
President Donald Trump is set to announce a new round of import tariffs on goods from China and several other countries in July, aiming to address the U.S. trade deficit. Although the tariff rates will be lower than those initially proposed in April, Trump is expected to maintain a 10% tariff on countries with which the U.S. runs a trade surplus, with some exceptions depending on negotiations tied to increased imports of U.S. goods.
Additionally, tariffs ranging from 10% to 25% may be imposed on certain product categories to boost domestic industries and discourage imports. These include steel, aluminum, automobiles and auto parts, and potentially pharmaceuticals in the future.
If the situation worsens or higher-than-expected tariffs are implemented, Thailand could face indirect impacts as part of the global supply chain—particularly in industries linked to China or reliant on Chinese inputs for exports to the U.S. This would put further pressure on Thailand’s exports amid a still-fragile global economic recovery.
In response, Thailand should accelerate efforts to diversify its trade markets, strengthen cooperation within ASEAN, and leverage ASEAN to enhance its bargaining power with the United States. At the same time, Thailand can use ASEAN to negotiate with China to reduce the use of Thailand as a transit hub for exports to the U.S., especially since Thailand gains limited added value from such production.
This is reflected in Thailand’s manufacturing index, which remains low and shows limited recovery, unlike exports, which have grown well recently along with a surge in imports.
Looking ahead, we expect export growth to slow in the third quarter and contract in the fourth quarter, resulting in full-year export growth of only 3.5%.
Iran’s Retaliation
Tensions in the Middle East, especially between Iran, Israel, and their allied nations, have somewhat eased. However, if conflict flares up again, it could drive significant volatility in oil prices, becoming a new source of pressure on both the global and Thai economies—particularly while economic recovery remains incomplete.
If crude oil prices surge above USD 100 per barrel due to prolonged instability in the region and disruptions to oil shipments through the Strait of Hormuz, a supply shock could occur. This would likely trigger a renewed spike in inflation, increasing costs for businesses and raising the living expenses of the population, thereby dampening domestic purchasing power.
At the same time, central banks in many countries, especially in Asia, could face a difficult choice between maintaining interest rates to control inflation driven by higher oil prices and easing monetary policy to support economic growth.
The MPC Can No Longer Hold Interest Rates Steady
Thailand’s interest rate policy is currently in a highly challenging situation. Although inflation has remained below the target range for a sustained period, the Monetary Policy Committee (MPC) has been cautious about cutting rates. The committee cites the importance of maintaining long-term stability and the need to build up “policy space” to manage future risks.
However, the delay in easing monetary policy may put pressure on the real economy, especially at a time when consumption and investment have yet to fully recover, and household debt remains high. Meanwhile, many Asian trading partners have begun signaling interest rate cuts amid a weakening global economy.
We believe the Bank of Thailand should place greater emphasis on real economic conditions, particularly as structural factors and external risks continue to weigh on growth prospects.
We expect the MPC to reduce the policy interest rate to 1.50% at the August meeting, followed by another cut to 1.25% in December.
Baht Weakens Reflecting External Risk Factors
In the third quarter, the Thai baht is expected to remain volatile amid both domestic and external risk factors. Although the baht has weakened recently due to capital outflows, domestic political uncertainty, and tensions in the Middle East, it has actually appreciated against the U.S. dollar since the start of 2025. This reflects a global decline in investor confidence in the dollar amid economic policy risks stemming from President Trump’s renewed trade protectionism.
At times, the baht has also strengthened more than some neighboring currencies, partly due to sharp increases in gold prices. As Thailand is a major gold trader, higher gold prices lead to increased gold exports and an influx of U.S. dollars into the system. This temporarily boosts demand for baht, causing the currency to appreciate quickly in ways that are not aligned with short-term economic fundamentals.
Such rapid baht appreciation could negatively affect the competitiveness of Thai exporters, especially during a period of global economic slowdown and heightened price competition.
Looking ahead to Q3, we expect the baht may depreciate slightly against the U.S. dollar due to concerns over the trade war. We forecast the baht to trade around 32.90 USD/THB by the end of Q3 and soften further to 33.30 USD/THB by year-end.
Summary – Is a Recession Looming for Thailand’s Economy?
The Thai economy faces risks from multiple factors mentioned earlier: a prolonged slump in real estate construction, a decline in tourists, weak consumption, a sluggish auto market, fragile purchasing power, contracting credit due to rising credit risks, insufficient easing of interest rates, and a strong baht that undermines export competitiveness. Political stability is starting to waver, and external pressures remain intense—particularly the fragile situation in the Middle East that could flare up again, and the ongoing U.S. trade war.
In this baseline scenario, we expect the Thai economy will likely not grow in upcoming quarters or may enter a prolonged stagnation, with full-year GDP growth around 1.8%. However, this is not worse than the current situation.
If we consider whether Thailand might experience a technical recession—defined as two consecutive quarters of quarter-on-quarter GDP contraction—there is a risk, especially in Q3 (contracting from Q2) and Q4 (contracting from Q3). This could happen if the situation deteriorates further, for example:
A more severe trade war causing sharp export declines
Iran closing the Strait of Hormuz pushing oil prices higher
Political turmoil leading to parliament dissolution and prolonged budget delays, stalling stimulus until mid-next year
Investor confidence collapsing as they await a new government before investing, causing production contraction and slow industrial relocation
In this adverse scenario, we forecast Thai GDP growth at 1.4% for 2025.
On the other hand, a more positive scenario is possible, such as:
Successful trade negotiations improving confidence
Exports stabilizing in the second half of the year
Continued progress in industrial relocation
Effective and comprehensive economic stimulus
Stronger tourism recovery
Oil prices easing, lowering import costs
In this optimistic scenario, quarterly growth in the second half could be around 0.3% quarter-on-quarter, leading to full-year GDP growth of 2.3%.
In summary, whether in a downside, baseline, or upside scenario, Thailand’s economy faces the risk of low growth—not just this year but potentially extending into next year and beyond—unless sustainable structural solutions are implemented. Without such reforms, Thailand risks losing its appeal as an investment destination for foreign capital.
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