OECD Economic Outlook, Volume 2025 Issue 1

Thailand

Real GDP growth is projected to decrease to 2.0% in 2025 from 2.5% in 2024. Export growth will decline with impulse from front-loading ahead of US tariffs being overtaken by their negative effects on trade, investment, incomes and consumption. A recovery in domestic demand will lift growth in 2026 to 2.4%. Price inflation will remain below the 2% centre of the inflation target range. The impacts and uncertainties in global tariff policies are the most prominent risk to the outlook.

Fiscal consolidation is needed to reduce the public debt burden while also strengthening support for vulnerable groups. Monetary policy should stand ready to make further interest-rate cuts in the event of weak inflation and further deterioration in growth. Boosting efficient and competitive markets through lean regulation, effective competition policy and better resource allocation, including by reducing informal economic activity, are key priorities for raising long-term growth potential and investment.

The economy is weakening

Thailand’s domestic demand has been flagging. The economy grew by 0.7% (non-annualised) in the first quarter of 2025. However, investment declined. Meanwhile, trade was supported by front-loading of exports ahead of US trade tariffs; merchandise export values in March rose by 18% year-on-year. Consumer confidence improved between October and January but has since reversed. Business sentiment was also showing some improvement but has recently dipped. Headline inflation has risen from the lows of 2024 reaching 1.1% (year-on-year) in the first quarter of 2025, slightly above the lower bound of the target band of 1-3%. The consumer price index fell by 0.2% over the year to April, but core inflation rose by 1.0%.

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. CCI = 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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Thailand is subject to the United States’ 10% universal import tariff and is exposed to the 25% tariff on cars and car parts. Thailand’s goods exports to the United States represent about 15% of GDP in value terms. 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 easing and fiscal deficits are widening

The Bank of Thailand has reduced its policy rate by 75 basis points in recent months. The latest cut, made in April 2025, brought the rate to 1.75% and reflected a response to the worsening outlook for output growth amid continuing low price inflation. The Bank’s support for economic activity is welcome given the diminished scope for bolstering the economy through fiscal policy measures. One more rate cut is envisaged in the context of the central projection. Further rate cuts, if needed, should remain firmly rooted in a data-dependent and independent approach. The public debt burden is elevated and continues to increase. Outstanding government debt amounted to 64.4% of GDP as of end-March, around 20 percentage points above pre-pandemic levels. The fiscal deficit is being widened by the government’s cash handout scheme. Disbursements of a first tranche of transfers to households, began in October 2024. A slight narrowing of the budget deficit in 2026 will slow growth in the public debt burden.

Output growth will slow in 2025

Output growth in 2025 is expected to be lower than in 2024, at 2.0%. Negative effects from international trade policy developments will emerge in household consumption, investment and trade. In 2026, recovery in domestic demand and trade as the tariff impacts tail off will lift output growth to 2.4%. These developments will be echoed in the labour market. Inflation will increase gradually during 2025 and 2026. Uncertainties around international trade polices dominate the risk profile. Risks around high levels of household debt also remain.

Stronger competition is key to raising growth potential

Raising growth potential, including via productivity-enhancing investment, requires stronger competition in product and service markets. Reducing entry barriers and strengthening the competition authority will also boost investment and productivity, along with further improvements in public integrity. Growth potential and investment would also be enhanced by a further shift away from low‑productivity, informal economic activity. Mobilising additional fiscal revenue would help fund spending pressures from mounting social demands, population ageing and the green transition. Improving the coverage, co-ordination and targeting of social benefits, including basic pensions, and raising benefit levels, would allow further reductions in inequality and poverty, creating better opportunities for all.