Tuesday, July 1, 2025
Thailand’s economic growth slowed in May compared to April, hindered by a decrease in tourism and a dip in manufacturing output, according to the Bank of Thailand (BOT). While the country saw an impressive rise in exports, these other challenges weighed down the overall economy.
The BOT pointed to a decline in both tourism revenue and the number of international visitors, especially long-haul travelers, as key factors behind the slowdown. At the same time, manufacturing output declined due to factors like previous inventory restocking and a temporary halt in refinery operations for maintenance.
However, exports were a bright spot, demonstrating strong growth in May. The BOT credited the surge in exports to increased global demand for electronics and the rush to ship goods ahead of approaching tariff deadlines. This export surge helped offset losses in other sectors and kept the economy on a positive trajectory.
According to the BOT, Thailand recorded a current account shortfall of \$0.3 billion in May. Private investment decreased by 0.6% from the previous month, but private consumption rose by 0.2%, bolstered by steady demand for durable goods. This slight growth in consumption was an encouraging sign, particularly in light of the broader economic concerns.
To support the economy amid these challenges, the Bank of Thailand decided to maintain its key interest rate at 1.75%, the lowest level in two years. The BOT stated that this decision aimed to preserve policy space to address the economic headwinds caused by global trade uncertainties and domestic political instability. The central bank also acknowledged that growth in the first half of the year had been stronger than expected, largely due to the rush to complete export orders before tariffs were enacted. Despite this, the outlook for the rest of the year remained uncertain, with the BOT signaling its readiness to cut rates further if necessary.
The BOT’s monetary policy committee decided by a 6-1 vote to maintain the one-day repurchase rate, highlighting that earlier rate cuts in February and April were aiding economic stability. However, the BOT cautioned that the Thai economy is likely to experience slower growth in the coming months, particularly due to risks associated with merchandise exports. These risks stem from factors such as US trade policies, geopolitical issues, and domestic challenges.
Despite these risks, the BOT revised its economic growth forecast for 2025 upward, projecting growth of 2.3%, which is closer to last year’s growth of 2.5% and higher than some market analysts’ estimates. This revision reflects a stronger-than-expected start to the year, which has been partly driven by the rush to fulfill export orders before US tariffs take effect.
To counter potential slowdowns, the BOT expressed its willingness to take further action if the economy does not pick up as anticipated. According to Lavanya Venkateswaran, a senior ASEAN economist at OCBC Bank, there is still room for additional support. Venkateswaran predicted that the BOT could cut rates by another 25 basis points in the second half of the year, given the risks to growth posed by domestic political concerns and US tariffs.
Some analysts, such as Capital Economics, expect the BOT to implement a larger rate cut of up to 50 basis points by the end of the year, depending on how the economy performs. The Thai baht experienced minimal movement following the announcement to hold the interest rate steady, a decision that most economists had predicted in a recent poll.
Another challenge facing Thailand’s economy is the tourism sector, which plays a vital role in driving domestic growth. The BOT revised its forecast for tourist arrivals downward, predicting 35 million visitors for the year, which is a reduction from previous projections. This downgrade reflects the slowing pace of international travel and concerns about the global economy.
The outlook for Thailand’s export sector remains uncertain, particularly in light of the looming US export tariffs. Thailand faces a 36% tariff on exports to the US if it does not secure a reduction before the expiration of the current moratorium in July. Other countries will face a 10% tariff during this period, further adding to the pressure on Thailand’s economy.
Thailand’s economy is grappling with multiple challenges, such as a slowdown in tourism, manufacturing, and private investment growth. While exports have provided a boost, uncertainties surrounding global trade and domestic factors make the future outlook uncertain. The BOT’s decision to keep interest rates unchanged reflects its commitment to supporting the economy, with the potential for further rate cuts if needed. However, the situation remains fluid, and Thailand’s ability to navigate these economic pressures will be crucial in the coming months.
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