Thai economic growth projections reduced to 1.7% due to multiple crises and political instability

Thai economic growth projections reduced to 1.7% due to multiple crises and political instability

Thailand's Economy Braces for Slower Growth in 2025

The economic forecasters at the University of the Thai Chamber of Commerce (UTCC) have slashed their prediction for Thailand's GDP growth in 2025, shifting it from the initial 3% to a sobering 1.7%. This downgrade comes as a wave of economic risks sweeps across the nation, with trade wars, political instability, border tensions, and threats of US tariffs on Thai goods casting shadows over the second half of the year.

Dr. Thanawat Pholvichai, President of UTCC and the center's chief advisor, painted a grim picture, pointing to the escalating concerns that are dragging the economy down. Among the factors identified are:

1. Ongoing Trade War: The US-Thai trade war looms large, with the possibility of US tariffs on Thai products hanging over the economy.
2. Middle East Conflict: The Israel-Iran conflict poses a threat, with tensions rising along the Thai-Cambodian border adding to the mix.
3. Political Stability: Domestic political instability raises questions about the effectiveness of their stimulus disbursement.
4. Government's Actions: Negotiations with the US over tariffs are in the final stages and must be resolved by July 8 to avoid further harm to the economy.

Possible Outcomes

UTCC's revised forecast assumes a moderately optimistic scenario, with US tariffs capped at 10-15% and an expeditious resolution to both the Middle East conflict and Thai-Cambodian border issues. If all these factors align, the country can expect an export growth of +2.5% despite the gloomier projections for GDP growth.

However, a worse-case scenario would involve steeper tariffs and protracted conflicts that hamper economic growth. In this situation, Thailand could see its GDP growth slide to 1.3%.

At the far end of the spectrum, the worst outcomes could see GDP growth drop to 0.9%, with potentially severe consequences, including a partial or total collapse of the government, limited disbursement of the stimulus package, and full-scale regional wars in the Middle East.

It's worth noting that these projections assume no further escalations in any risk areas. As political developments and external shocks continue to unfold, UTCC acknowledges that the outlook remains highly sensitive.

Thai-Cambodian Border. If tensions ease within a month, Thai exports could face a loss of 11.66 billion baht, shrinking the GDP by 0.06%. Conversely, should tensions escalate, closing border checkpoints for the remainder of 2025 would cause a loss in export revenue totaling 69.95 billion baht, resulting in a GDP contraction of 0.38%.

Political Scenarios Caused by Leaked Audio Clip

UTCC has examined the potential economic impact of the leaked audio clip involving Prime Minister Paetongtarn Shinawatra's conversation with Hun Sen. Three possible political scenarios and their respective economic impacts are as follows:

1. PM remains in office throughout the year, ensuring continued budget disbursement and the implementation of the 157-billion-baht stimulus plan - GDP impact: -0.06%.
2. A new PM from the same coalition bloc is appointed, causing a 2-3 month delay in the 2026 budget - GDP impact: -0.20%.
3. PM dissolves the House, delaying stimulus efforts for 3-6 months and restarting the 2026 budget process - GDP impact: -0.66%.

Iran-Israel Conflict could also influence Thailand's economy, with the following outcomes:

1. Quick resolution - GDP impact: -0.07%.
2. Prolonged conflict - GDP impact: -0.59%.
3. Escalation into full-scale regional war, including Iran closing the Strait of Hormuz - GDP impact: -1.07%.

US Retaliatory Tariffs could lead to export losses and GDP contraction, depending on the tariff percentage:

1. 10% tariff - export losses of 74.05 billion baht, GDP impact: -0.40%.
2. 15-20% tariff - export losses of 131.81 billion baht, GDP impact: -0.71%.
3. 25-30% tariff - export losses of 201.86 billion baht, GDP impact: -1.09%.

Wichian Kaeosombat, CEBF Assistant Director, cautioned that the second half of 2025 remains uncertain due to several key risk factors. These include the direction of US trade policy, monetary policy implications of potential increases in oil prices, the impact of import restrictions, the effectiveness of the stimulus package, and stability within the government.

Based on these variables, UTCC holds a base-case GDP growth forecast of 1.7% for 2025, while anticipating growth rates for exports, imports, inflation, and public and private sector investments. In tune with the slowing economy, tourist arrivals and revenues are expected to drop, while household debt remains a concern, reaching 87.4% of GDP.

• TAGS
• Economy
• GDP Forecast
• UTCC
• Trade War
• Political Instability
• US Tariffs
• Borders Tensions
• Middle East Conflict
• Thai-Cambodian Border
• Prime Minister Controversy
• Thai Economy

1. The Thai economy faces challenges as economic forecasters predict a slower growth of 1.7% in 2025, due to risks from trade wars, political instability, border tensions, and US tariffs on Thai goods.
2. US tariffs, if not resolved by July 8, could potentially harm the Thai economy, with capped tariffs at 10-15% impacting export growth and GDP growth.
3. The Iran-Israel conflict and the subsequent effects on the Strait of Hormuz could also impact the Thai economy, with a full-scale regional war leading to a GDP impact of -1.07%.
4. The ongoing US-Thai trade war, the Thai-Cambodian border tensions, and political instability, can collectively affect various sectors of the Thai economy, including tourism, finance, and business, as well as general news and national politics.

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