OECD Economic Surveys: Thailand 2025

Executive Summary

Key messages

Thailand’s living standards have increased substantially in recent decades, but there are signs of slowdown in the face of ongoing and emerging structural challenges. Recent years have seen slower catch up in Thailand’s GDP per capita relative to the OECD and progress in poverty reduction has also slowed. The key sectors of tourism and manufacturing have been facing specific challenges and changes in the global trading environment are a major risk to the economic outlook.

• Macroeconomic stability remains broadly sound despite slowing growth. Monetary policy could provide further support if growth weakens further, conditional on inflation remaining on target, while additional revenue mobilisation would help reduce public debt and create fiscal space for upcoming spending pressures related to ageing and climate change.

• Boosting business-sector productivity requires strengthening competition, facilitating trade, attracting foreign investment, reducing administrative burdens and continuing the fight against corruption.

• Adapting to climate change requires greater attention to flood and drought risks, and further development of resilient low-emission crops. Progress towards emission reduction targets will hinge on decarbonising electricity generation.

• Widespread informality leaves many households with limited access to social protection and weighs on productivity and public revenues. More inclusive growth requires upskilling and well-coordinated reforms to expand non-contributory social benefits while nevertheless maintaining strong formalisation incentives.

Structural reforms are needed to reinvigorate improvements in living standards

Thailand has seen sound economic and social advances over past decades. Still, maintaining a strong pace of progress is becoming increasingly challenging. Per capita growth has been low in recent years, partly due to specific sectoral issues, and recent developments in the global trading environment add new downside risks. Raising productivity growth while addressing the structural challenges of population ageing, widespread informality and the green transition will require additional policy efforts.

Recent decades have seen substantial increases in living standards. Thailand was among the first Southeast Asian countries to successfully pursue integration into world trade and global value chains. Foreign direct investment (FDI) played an important role in this strategy. Manufacturing competitiveness saw strong improvements while tourism grew rapidly. Between 2000 and 2019, per capita incomes rose from around 30% of the OECD average to over 40%. In 2011, Thailand became an upper-middle income country by the World Bank’s definition.

Thailand has strong ambitions for the future, including OECD membership and becoming a high-income country by 2037. Achieving these goals and meeting the rising demands of an increasingly prosperous population will require stronger policy implementation and better public services. Productivity will need to rise, both in manufacturing and services. Greater competition is a key ingredient in achieving this. Meanwhile, social protection remains patchy and could be organised more effectively to accelerate the shift away from informal economic activity, while also eradicating poverty, especially as the population ages. A sustainable continuation of strong income growth, and economic development more widely, will require investments in climate change adaptation as well as mitigation action to reach ambitious emission targets.

Growth has lost some momentum in recent years. A combination of a slow post-pandemic recovery in tourism, structural change in the manufacturing sector and weaker export prospects have damped activity (Figure 1). Global trade tensions have brought challenges for exporters. These developments amplify the need for structural reforms to reinvigorate improvements in living standards. Building political consensus will be challenging in some cases. Some reforms will require mobilising additional revenues and finding more effective ways to spend scarce public resources.

Figure 1. Catch-up in GDP per capita has slowed

Real GDP per capita

Note: Data are based on nominal GDP adjusted for purchasing power parity (current international dollars). G20 emerging economies: Argentina, Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa, and Türkiye. Weighted average based on each country’s population.

Source: World Bank (2025), World Development Indicators.

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The economy is slowing amidst elevated risks

Thailand’s economy is projected to slow in 2026, principally due to adverse developments in international trade. However, output growth is expected to pick up in 2027. Inflation is low and interest rates have been reduced. High private-sector debt remains a risk to the macroeconomic and financial outlook.

Real GDP growth in 2025 is expected to turn out at 2.0%, lower than in 2024 (Table 1). Weaker export prospects will weigh not only on trade, but also on investment. Negative effects from international trade policy are expected to continue to work through the economy. 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. Consumer-price inflation will increase gradually during 2025 and 2026 but remain well within the Bank of Thailand’s target range of 1-3%.

Uncertainties around trade tariffs remain elevated, posing a major risk. Both the threat and reality of new trade tariffs by the United States and related actions by other countries remain a major risk to the economic outlook, particularly for certain segments of the manufacturing sector.

In the financial sector, there are risks around consumer and corporate credit. Overall, the financial sector appears sound, but a deterioration in credit quality in some segments calls for caution. In addition, longstanding concern around Thailand’s elevated private-sector debt remains. Pre-COVID-19, household and corporate debt was equivalent to around 160% of GDP. In the first quarter of 2025 this figure was 170%; slightly above Malaysia (157%) and considerably above that for Indonesia (40%).

Table 1. Output growth will weaken in 2026

Annual growth rates, unless specified

	2024	2025	2026	2027
Gross domestic product	2.5	2.0	1.5	2.6
Private consumption	4.4	2.5	1.9	2.3
Government consumption	2.4	0.1	2.3	2.7
Gross fixed capital formation	-0.1	3.4	4.0	2.6
Exports of goods and services	7.8	8.4	2.1	2.6
Imports of goods and services	6.3	5.3	2.9	2.5
Unemployment rate, %	1.0	0.9	1.1	1.1
Consumer price index	0.4	-0.2	0.9	1.9
Fiscal balance, % GDP (calendar year)	-5.6	-6.0	-5.6	-5.2
Current account balance, % GDP	2.2	4.2	3.7	3.7
Policy rate (period average)	2.4	1.7	1.3	1.3

Source: OECD 118 database.

More revenue is needed to stabilise the fiscal deficit and accommodate spending needs

Monetary policy has stepped in with rate cuts to support real-side activity and should stand ready to continue easing if activity weakens further, conditional on continued low inflation. Scope for fiscal support is limited as Thailand’s public debt burden has grown further since the sharp rise during the pandemic and is heading towards the 70% ceiling set in the fiscal rules. Meanwhile, spending pressures in social protection and public investment, including in the energy transition, will rise in coming years.

Monetary policy rightly reacted to the trade-related downturn with a further easing of monetary conditions. By November 2025 the Bank of Thailand had reduced its policy rate to 1.5% in the context of a weakening economic outlook alongside continued low inflation and stable inflation expectations. However, monetary policy trade-offs could become more challenging should inflationary pressures emerge. The policy stance should remain firmly data-dependent to safeguard policy credibility.

Fiscal policy needs to focus on stabilising the fiscal deficit in the near term. The public debt burden is expected to reach over 65% in 2025, heading towards the 70% ceiling set by government policy. Calls for new spending measures, such as support in the wake of international developments in tariff policies, need to be carefully weighed against the mounting public debt burden. For the medium term, fiscal planning and budget execution should focus more strongly on reducing the deficit and public debt.

Medium term spending pressures are set to rise. An ageing population will call for improvements in social protection and healthcare. Contributions of 10% finance the main private-sector pension scheme, but without parametric reforms this rate will need to rise substantially to ensure the sustainability of the scheme as more future beneficiaries reach pension age. Non-contributory schemes have been expanded but benefit levels are low. Public capital spending in Thailand falls short of that stipulated in the fiscal rules. Decarbonising the economy and adapting to climate change will create additional investment needs.

Deficit containment and growing spending needs will require a structural expansion in fiscal revenue capacity. At current revenue levels, the scope for additional spending while remaining within public debt rules is being exhausted. Relative to other upper-middle-income countries, Thailand has ample scope for increases in tax revenues. This includes raising the rate and coverage of value-added taxation, lowering personal income taxation thresholds and reducing tax expenditures. High thresholds mean that around 90% of the labour force do not pay personal income tax.

Business-sector productivity needs to increase

Thailand’s trend labour productivity growth has slowed (Figure 2). Between 2015 and 2023, productivity growth averaged 2.1%, compared with 4.8% between 2010 and 2015. In addition, multifactor productivity has been weak. Improvements to Foreign Direct Investment (FDI) policies along with measures that strengthen competition, reduce red tape and combat corruption would improve the allocation of resources and boost growth.

Inflows of FDI have been sizeable but fall short of those received by regional peers. Between 2015 and 2023, Thailand accumulated FDI worth 11% of annual GDP, considerably less than Malaysia (25%) and Viet Nam (42%). Thailand has comprehensive FDI incentives. Yet, their effectiveness in attracting investment in high-productivity goods and services could be bolstered by lowering the remaining barriers to FDI, including in services, and further progress on free trade agreements.

Stronger competition between businesses is also key to strengthening productivity in Thailand. Competition is weakened by an uneven playing field for private firms and state-owned enterprises, partly because the latter are often exempt from the main competition legislation. The authorities’ capacity to block mergers is also constrained.

Paring back regulation and red tape could boost both competition and productivity, by lowering barriers to entry and freeing managerial resources. Recent measures to cut red tape are welcome, yet there is scope for further pruning.

Better economic governance, including further progress in fighting corruption, would improve resource allocation. Despite advances, for instance in strengthened no-gift rules, perceived corruption remains high and indicates considerable scope for further progress.

Figure 2. Hourly labour productivity growth has been lagging regional peers

Source: APO Productivity Database 2025.

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Adapting to climate change will be challenging

Effective mitigation requires further steps to decarbonise electricity generation. Climate-related risks arising from higher temperatures and more frequent extreme weather events are increasingly inflicting damage on the economy and communities (Figure 3). Improving risk mitigation and helping the adaptation of economic sectors remain priorities.

Further action will be required to meet current emission reduction targets. Decarbonising electricity generation and transport, protecting forests, as well as reducing agricultural and industrial emissions, will be crucial to meet Thailand’s mitigation targets and preserve the environment.

Adaptation to climate change should proceed in parallel with mitigation efforts. Thailand is highly exposed to the effects of climate change, as temperatures increase, and precipitation becomes less frequent but more intense. Rising sea levels are a key threat for the Bangkok metropolitan area, which, on average, is only 1.5 m above sea level and is sinking under its own weight. A barrier system is planned that will stem the flows of seawater into the city’s rivers. Floods and droughts are likely to become more frequent and more severe, calling for improvements in the capacity to identify risks and manage disasters, including better early warning systems. A granular mapping of natural hazards is key for planning and zoning purposes. Investment in water management, which is often hampered by fragmented governance and responsibilities, can mitigate the effects of low rainfall and insufficient river flows.

Adaptation measures are required across a range of economic sectors. In agriculture, advances in techniques, including crop diversification, can improve the resilience to climate variability while sustaining agricultural productivity and livelihoods. Identifying and spreading best practices is part of the solution. Coastal erosion affects Thailand’s beaches, a key asset for tourism can be addressed through a mix of hard and soft solutions (mangroves, beach vegetation) as well as tighter regulations on coastal buildings.

Figure 3. Floods and droughts are particularly costly in Thailand

Damages from climate-related hazards as share of GDP in OECD and ASEAN countries, 2005-2024

Note: The EM-DAT database does not consider indirect damages, which is why total recorded damages differ between sources.

Source: Centre for Research on the Epidemiology of Disasters (2025) and World Bank national accounts data.

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Policy reforms can accelerate the shift away from informal economic activity

Informal activity remains widespread, both among workers and firms, despite gradual improvements. More than half the workforce is in informal employment (Figure 4). Educational attainment among informal employees is often low and training opportunities limited. Access to social protection is growing but still low. Improving protection for informal workers while strengthening formalisation incentives requires a comprehensive strategy. Business formalisation would benefit from lighter business and labour regulations, as well as a simplified tax regime for small firms.

Investing in human capital can help shift more of the workforce into higher-quality jobs. Vocational education and skill development programmes could become more effective with better coordination and a clearer alignment of training content with employers’ needs, including those of small firms. Better career guidance in schools can reinforce this and ensure that women have access to the full range of career choices.

The design and financing of social protection can improve to foster formal job creation. Contributory social security schemes including old-age pensions and healthcare benefits have been expanded since their inception in 1999 but cover only a minority of workers.

Thailand has made good progress in rolling out tax-financed non-contributory pensions and healthcare. These schemes should be expanded further to strengthen social protection for low-income households, including those in the informal economy, while ensuring a better integration of contributory and non-contributory schemes. Current non-contributory pensions benefits fall substantially short of the poverty line and should be raised gradually to further reduce old-age poverty.

A stronger reliance on non-contributory schemes would allow lower social security contributions for low-income and self-employed workers, promoting formalisation. Improvements to the contributory scheme would allow it to better complement the basic pillar, delivering better replacement rates and thus helping incentivise the switch to formal employment.

Some business regulations contribute to informality. Improving the business environment by easing licensing regulations could reduce barriers for formalisation, while the costs of formal job creation could be lowered by reviewing labour market regulations, including minimum wage rules. At 50-60% of the average formal-sector wage, with regional variation, the minimum wage is high relative to wage levels in informal activities. A targeted, presumptive tax regime for small businesses would also improve formalisation.

Stronger incentives for workers to formalise should be accompanied by stronger enforcement efforts. The enforcement of tax, labour and wage regulations is weak but should be stepped up, though with caution to ensure that it drives informal workers into formal jobs and not into unemployment. As incentives improve and the cost of formal job creation declines, however, this will also enhance the positive contribution that stronger enforcement can play.

Figure 4. Despite progress, a majority of workers remain in informal employment

Informality by type of work, millions of workers

Note: Other is the sum of employers and members of producers’ cooperatives

Source: NSO (2024)

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MAIN FINDINGS	KEY RECOMMENDATIONS
Promoting economic growth and safeguarding against macroeconomic risks
Core inflation is close to the lower bound of the central bank’s target range. Developments in trade policies internationally have generated volatility in financial and exchange rate markets alongside risks for output growth.	Maintain a prudent, data-dependent monetary policy and stand ready to lower rates further if growth slows and inflation remains low.
Fiscal buffers continue to decline; the public debt burden is expected to rise beyond 65% of GDP in 2025. Near term slowdown in the economy is bringing pressures for new support measures. Over the long term, population ageing and the green transition will continue to require additional resources.	Stabilise the near-term fiscal deficit and devise more ambitious medium-term fiscal plans to put the public debt burden on a firmly downward path.
Tax revenues remain low due to narrow tax bases and low tax rates. This compromises capacity for sustained reduction in fiscal deficits and for financing growing public spending needs.	Mobilise additional tax revenue over the medium term by reinstating the 10% VAT rate, considering further increases, broadening the base and lowering the thresholds for paying personal income taxes.
The financial sustainability of the contributory pension scheme is challenged, inter alia, by population ageing, low retirement ages and in settings and calculation methods in contributions and payouts.	Improve the sustainability of the contributory social security scheme through changes to the retirement age, employment age limits, and the calculation of contributions and benefits.
Strengthening productivity through better product-market regulation
Quantitative indicators suggest that Thailand’s FDI regulations are considerably more restrictive than the OECD average.	Evaluate and reduce current restrictions to FDI, including foreign ownership restrictions in services.
Economically significant state-owned enterprises (SOEs) are exempt from the main competition legislation, the Trade Competition Act.	Level the playing field between SOEs and private firms, including by granting the competition authority powers to effectively restrict anti-competitive behaviours of SOEs.
The importance of advancing on trade agreements has increased given recent developments in trade policies internationally.	Expedite negotiations on free-trade agreements with major export markets.
Further progress in combatting corruption would improve potential output growth and productivity by increasing allocative efficiency. Thailand ranked 107th out of 180 countries on the Corruption Perceptions Index in 2024.	Accelerate efforts to combat corruption, including through alignment with the OECD’s Anti-Bribery Convention and introduction of a system to encourage good practice in relations between parliamentarians and lobbyists.
Adapting to climate change
Early warning and disaster management systems have been significantly improved but a more comprehensive and proactive approach is needed.	Strengthen disaster preparedness by improving warning systems and investing in climate-resilient infrastructure.
The electricity mix is largely made of natural gas, though coal-fired power plants are still being deployed. Renewables represent a growing share.	Accelerate the phase-out of power generation from coal and the deployment of renewable energy sources.
Thailand’s Agricultural Development Plan (2017-2036) aims to identify and disseminate farming best practices, to increase crop yields and climate resilience while reducing GHG emissions. More effort is needed for systematic evaluation and knowledge dissemination among farmers.	Continue identifying farming best practices (water and fertiliser management, cultivar selection, etc.) to increase resilience and reduce GHG emissions. Promote knowledge sharing and incentivise adaptation among farmers.
Tackling informality
Around half of the workforce is in informal employment, with very limited access to social protection benefits.	Establish a comprehensive strategy to foster formalisation, including through better skills, lower non-wage labour costs for low-income earners, less cumbersome labour regulations, lower administrative burdens and stronger enforcement.
The share of upper-secondary students in vocational education is comparable to the OECD but falls short of the country’s objectives. Women face only moderate wage gaps but follow different careers compared to men.	Improve the quality of vocational education nationwide and enhance pathways towards higher education, in coordination with the private sector. Further promote vocational education among school students. Improve the supply and quality of career guidance in schools and ensure that women have access to the full range of career choices.
Mandatory social security contributions can be an obstacle to formalisation for low-income workers with low capacity to contribute. Given population ageing, contributions will likely have to rise substantially.	Reduce social security contributions for low-income earners by exempting them from mandatory participation in contributory schemes.
The non-contributory Old Age Allowance has allowed substantial increases in pension coverage, but benefit levels are below the poverty line.	Raise benefit levels of the Old Age Allowance, while continuing to strive for full coverage of elderly persons in need.
Intense economic regulations and permit requirements in many sectors contribute to informality. Smaller firms often lack the expertise and managerial resources to handle heavy administrative burdens.	Conduct a comprehensive review of regulations with a view to reducing their volume and complexity. Review processes for business permits with a view to accelerate and ease permit acquisition. Specifically target small businesses with simplified tax and administrative paperwork, as well as information campaigns.
Implementing a presumptive tax regime in Thailand could streamline the taxation process for small businesses and expand social insurance coverage to self-employed individuals and workers in micro-enterprises.	Leveraging digital tools, introduce a presumptive tax regime for small businesses, based on turnover, that provides access to attractive social insurance benefits.