OECD Economic Outlook, Volume 2025 Issue 2

Thailand

Real GDP growth is projected to decrease to 1.5% in 2026 from 2.0% in 2025 as higher tariffs weigh on exports and investment and as household consumption weakens, before picking up to 2.6% in 2027 as the tariff impacts fade. Inflation will increase gradually but remain below the 2% centre of the inflation target range. Uncertainties around the ongoing impacts of tariffs on goods exports, faltering income from tourism and the evolution and impact of high household debt on consumption are key risks to the outlook.

Given increasing fiscal deficits, consolidation is needed to reduce the public debt burden. Meanwhile, monetary policy could ease further if economic conditions worsen, conditional on inflation remaining low. Quantitative policy indicators point to considerable scope for regulatory reforms, including in trade regulation and competition policy. These would facilitate stronger market competition, thereby boosting productivity.

Growth is weakening further

Thailand’s aggregate demand is flagging. The economy shrank by 0.6% in the third quarter of 2025 and indicators point to ongoing weakening. Household and business confidence indices have continued to decline and agricultural and industrial outputs have slowed. The nominal value of merchandise exports has fluctuated considerably, and tourism remains subdued. The weakening economic situation is now starting to thwart employment prospects. The headline consumer price index has been falling, as large harvests have lowered raw food prices, and energy prices are on a downward trend, reflecting government subsidies and global crude oil prices. Meanwhile, core inflation remains stable and close to the lower bound of the Bank of Thailand’s 1‑3% target range.

Thailand

1. The business confidence index is presented as a diffusion index ranging from 0 to 100. An index value above 50 indicates an improvement in business sentiment, while a value below 50 reflects a deterioration. The consumer confidence index ranges from 0 to 200, with 100 as the cut-off point. An index value equal to 100 suggests that consumer confidence is stable.

Source: CEIC; and Bank of Thailand.

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Thailand: Demand, output and prices

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Exports from Thailand to the United States are subject to a 19% tariff following the deal in August. Regional competitors Viet Nam, Indonesia and the Philippines have the same tariff, or close to it. In addition to direct exports to the United States, Thailand’s manufacturing exports feed into supply chains linked to Chinese exports. However, the manufacturing sector also potentially has capacity to substitute for Chinese US-bound exports.

Monetary policy is supporting economic activity, and the fiscal deficit is widening

The Bank of Thailand lowered its policy rate by 25 basis points to 1.5% in August, the fourth rate cut since 2024. The Bank paused the easing cycle in its October rate decision. A further rate cut is envisaged in 2026 with the rate then remaining at 1.25% until the end of 2027. The Bank’s support for economic activity is welcome given the diminished scope for bolstering the economy through fiscal policy. Additional cuts, if needed, should remain firmly data-driven, in line with the Bank’s stability mandate. The public debt burden is elevated and continues to increase. Outstanding government debt was 64.8% of GDP as of September, around 25 percentage points above pre‑pandemic levels. The fiscal deficit is set to widen partly due to subsidies for household spending on certain service-sector activities, including retail shops and restaurants. The package is valued at THB 44 billion (equivalent to a little under 0.25% of GDP) and aims to primarily boost the economy during the fourth quarter of 2025.

Growth will slow further

Output growth in 2025 is projected at 2.0%. Activity in the first two quarters has been supported by export front-loading, but growth has weakened over the second half of the year. Negative effects from international trade policy are expected to continue to work through the economy affecting trade and investment in particular. Consequently, annual output growth will drop to 1.5% in 2026. A recovery in domestic demand and exports as the tariff impacts taper will lift output growth to 2.6% in 2027, slightly above estimated potential. These developments will be echoed in the labour market. Inflation will increase during 2026 and 2027 as the temporary damping effects from low food and energy prices taper off. A narrowing of the budget deficit in 2026 and 2027 will reduce growth in the public debt burden. Uncertainties around international trade policies have lessened somewhat, but risks around high levels of household debt continue.

Further regulatory reform is key to stronger productivity growth

Raising growth potential, including via productivity-enhancing investment, requires stronger competition in product and service markets. The OECD Product Market Regulation Indicator for Thailand points to widespread scope for making regulation more conducive to competition. Near-term reform options include lightening foreign-ownership restrictions, particularly in services sectors, and granting the competition authority greater powers as regards state-owned enterprise. Meanwhile, steady progress is needed regarding reducing red tape and tackling corruption. Growth potential would also be enhanced by further shifting away from low-productivity, informal economic activities. A structural increase in fiscal revenue is required to ensure a reduction in the public debt burden while also meeting spending pressures from mounting social demands, population ageing and the green transition.