SCB EIC points out that the strong baht could be a 'shock amplifier', putting pressure on tourism and exports. Foreign imports to Thailand fell 7%, ranking last in Asia.

The strong baht is dragging down the economy. SCB EIC warns that the baht could act as a "shock amplifier," putting pressure on exports and tourism, exacerbating Thailand's low economic growth. The Monetary Policy Committee (MPC) is expected to cut interest rates to 1% next year, suggesting the government must urgently address economic issues with the 3 S strategy.

September 29, 2568 Dr. Yanyong Thaicharoen, Chief Executive Officer, Economic and Sustainability Research Division, Economic and Business Intelligence Center (SCB EIC) It was revealed that the Thai economy will grow slowly over the next 1-2 years due to external challenges that exacerbate internal vulnerabilities.

SCB EIC expects the Thai economy to face pressure from all sides. External challenges are heightened by the trade war and volatile global financial markets, while internal challenges are heightened by vulnerabilities in the business and household sectors, as well as fiscal constraints. Consequently, the Thai economy is expected to continue experiencing low growth, with growth projected at just 1.8% in 2568 and slowing to 1.5% in 2569.

• External challenges: The world is volatile, global demand is slowing, and Thailand will find it harder to rely on the world.

"Thai exports expanded well during the first eight months of the year, driven by accelerated front-loading before the US began imposing higher import tariffs, and gold exports, which had accelerated since the beginning of the year, showed clearer signs of an export slowdown in August, when the US 19% tariff was implemented earlier in the month. The only major product group experiencing strong growth in the US market is electronics, which remain exempt from the US tariff."

While many product groups are expected to contract, SCB EIC expects Thai exports to contract for the remainder of this year and continue to contract in the first half of 2569, due to substantial front-loading and the continued challenge of complex and uncertain US import tariffs amid slowing global demand.

• Strong baht puts further pressure on the economy

The baht has appreciated more than 8% against the US dollar this year, the strongest in four years and ahead of its regional competitors. This has resulted in the baht's index against its major trading partners gaining the most strength since the 1997 crisis. This is due to both external factors, particularly the weakening of the US dollar, and internal factors in Thailand, including a sharp rise in gold exports following the rapid rise in gold prices, a current account surplus, and capital inflows into the bond market.

The strong appreciation of the baht is not consistent with the fundamentals of the Thai economy, which tends to expand slowly.

The baht may therefore become an additional economic shock amplifier, impacting the competitiveness of the export sector, exacerbating the impact of Trump's tariffs, and putting pressure on the recovery of the tourism sector, as tourists traveling to other countries, such as Vietnam, have lower expenses than those traveling to Thailand.

The number of tourists visiting Thailand fell by 7% this year, the largest drop in Asia, while other countries in the region saw an increase in tourists, particularly China, which saw a 28% increase, the highest in the region, while Vietnam saw a 22% increase. One factor is the strong baht, which has led tourists to avoid Thailand because it costs more than going to other countries.

"The baht, which used to act as a shock absorber or a risk absorber, has been able to support tourism and exports somewhat due to its weaker value. However, the current baht's strength, which is not in line with the economy, could become a shock amplifier or put additional pressure on the Thai economy."

Business groups that will be severely affected by the strong baht include industries that rely heavily on exports and primarily rely on domestic production factors, such as agricultural products, as well as service businesses that rely heavily on foreign income, such as the tourism sector. These businesses will be affected by converting US dollar income into baht to pay for raw materials and wages. During a strong baht, they may experience exchange rate losses.

• Foreign tourist numbers are still much lower than last year, but are beginning to show signs of bottoming out.

Chinese tourist numbers remain lower than last year, but are starting to decline. Most tourists are likely to be more cautious about spending. Furthermore, there is competition to attract tourists from Asia, where Thailand's primary tourist group is largely the same as many other countries.

Furthermore, the continued appreciation of the baht risks putting Thailand at a competitive disadvantage against other destinations, particularly Vietnam and China, whose currencies have weakened more than other countries this year. Attracting tourists from India, the United States, and China, whose currencies have weakened compared to the baht, will also pose challenges for the recovery of foreign tourist arrivals going forward.

• Internal challenges: Fragile business, weak labor market, fiscal constraints

Business revenues are stagnant, profits are low, and the business sector, particularly SMEs, remains fragile. Business revenue is recovering in a broader K-shape, with average SME revenue still lower than pre-COVID levels. Meanwhile, the share of revenue from large businesses in the top 1% continues to expand, accounting for over 76% of total business revenue, reflecting increasingly challenging competition for SMEs.

While the proportion of zombie companies (businesses whose profits are insufficient to cover interest payments for three consecutive years) accelerated in 2024, particularly SMEs, listed companies, despite strong post-COVID revenue recovery, profitability has continued to decline and is recovering unevenly across sectors. Industrial businesses continue to face cost pressures and profitability has not yet returned to previous levels.

Private sector investment is expected to expand slightly this year and next, driven by continued imports of machinery and capital goods, primarily from foreign investment in the electronics, EV, and data center industries. While this may not significantly impact the Thai economy in the short term due to high import content, it will lay the foundation for the country's new S-curve industries.

• The labor market is weakening, incomes are falling. 

The Thai labor market has become increasingly fragile since the beginning of this year, as evidenced by accelerating unemployment rates in the social security system and unemployment rates among recent graduates. Working hours have decreased across all sectors, along with a rising proportion of underemployed workers. This pressures future income recovery amid direct and indirect risks of a heightened trade war. Employment trends in high- to medium-risk sectors have begun to decline since the beginning of the year, consistent with data from the National Statistical Office, which found that average household income decreased in the first half of 2568.

• The fiscal sector has limitations.

In the short term, economic stimulus funds will support consumption somewhat, but their impact on the economy will be minimal due to the limited funding. If parliament is dissolved and new elections are held next year, political uncertainty will impact the drafting of the 2570 budget bill, resulting in delays in disbursement. Furthermore, public debt is approaching the 70% ceiling soon, as the government struggles to reduce the deficit, rising interest rates, and reduced senior citizen welfare expenditures are difficult to mitigate. Furthermore, the government's revenue outlook remains low. This potential deterioration in medium-term fiscal stability poses a risk of a national credit rating downgrade. Clear fiscal reform frameworks, measures, and communication are required to mitigate this risk.

• Interest rates will be lowered further, easing tight financial conditions.

SCB EIC assesses that the Monetary Policy Committee (MPC) is likely to cut interest rates once more this year to 1.25% and again early next year to 1%. This will facilitate further easing of financial conditions, aligning with the Thai economic outlook, which is expected to slow down next year, inflation remaining below the lower bound of the monetary policy target, and continued deterioration in loan quality. Financial conditions have remained tight recently, as reflected in the real policy interest rate, which remains above historical averages, continued contraction in loans, and the strengthening baht index.

"Continuing to lower the policy interest rate will help support the economy, reduce the debt burden, and facilitate the deleveraging process, reducing business and household debt. However, it may not significantly boost new loans due to the caution of both financial institutions and borrowers."

• The new government's economic challenges are threefold (3S).

namely 1) Stabilize To restore confidence after the Thai economy faces challenges in many dimensions, we must focus on setting clear, achievable goals, coupled with proactive communication and effective advocacy processes.

2) Stimulate To stimulate the steadily weakening economic demand, the government will focus on targeted, rapid, and temporary fiscal measures, as well as expedited budget disbursements to boost purchasing power for the economy, alongside easing tight financial conditions through policy interest rate cuts, the use of credit guarantee mechanisms to increase SME access to loans, and the prevention of the baht's appreciation, which could impact the export sector.

and 3) Structural reform By upgrading government policies to support business adaptation, we aim to address regulations that hinder business operations, identify new export markets, and promote green transformation investments. We also aim to lay the foundation for long-term economic restructuring through policy frameworks to promote future industries, develop workforce skills, and implement fiscal reforms.

• The global economy will slow down next year due to trade war uncertainty.

Dr. Thitima Chucherd, Senior Director, Macroeconomic Research, Economic Intelligence Center (SCB EIC), revealed that SCB EIC assesses that the global economy for the remainder of this year and 2569 will be increasingly impacted by Trump 2.0 policies. The global economy is projected to expand by 2.5% in 2568 and 2.4% in 2569, a slowdown from 2.8% the previous year due to the trade war.

Although the global economy has improved somewhat from a mid-year perspective, following progress in trade negotiations with the United States and the acceleration of export production before the US retaliatory tariffs are announced, the global economy still faces high uncertainty. Although the US has already announced a reciprocal tariff, the US is likely to continue using sectoral tariffs and tariffs on transshipped goods as strategic weapons, the details of which are still unclear.

The US tariff wall is further accelerating the decoupling of the global economy and is likely to put pressure on trade and investment, particularly between-pole trade. Looking ahead, global economic activity will be driven by investment trends in strategic industries such as digital, AI technology, and clean energy. Risk diversification away from China (China +1), the relocation of production bases to countries with lower geopolitical risks, neighboring countries, or allies (nearshoring and friendshoring), and increased investment and relocation of production bases back to the US (reshoring), partly due to the trade agreement with the US.

Fiscal and monetary policies will play an increasingly important role in supporting the global economy, particularly major economies. For example, China's budget deficit is significantly higher, and Europe is easing fiscal constraints to increase its budget to address economic issues. However, fiscal deficits may exacerbate existing fiscal risks in many countries. Regarding monetary policy, the US Federal Reserve has cut interest rates by 25 bps since the beginning of 2568 and is expected to cut another 100 bps for the remainder of 2568 and 2569 to support a rapidly deteriorating labor market, despite the risk of inflation from import tariffs.

The People's Bank of China has already cut interest rates by 10 bps and is likely to cut another 30 bps, along with measures targeting the services and advanced manufacturing sectors. The European Central Bank will cut interest rates by another 25 bps, following a series of 100 bps cuts, ending this downward trend. The Bank of Japan raised interest rates by 25 bps earlier this year and is likely to raise them by a total of 50 bps in 2570 as the impact of Trump's tariffs, political factors, and wage negotiations become clearer.

• Thailand must strategically accelerate FDI attraction opportunities amid a polarized world

Ms. Pranida Syamanon, Executive Director of Industry Analysis at the Economic Intelligence Center (SCB EIC), stated that Thailand's foreign direct investment (FDI) outlook remains challenging despite Trump's tariff policies. Industries with significant FDI growth potential include those aligned with future trends, such as data centers and food for the future. Meanwhile, traditional target industries, such as electronics and automotive, are expected to expand to serve the global market, though this growth may slow due to factors such as US tax policy uncertainty and increased investment flows into USMCA countries, driven by higher tax advantages in the US market.

In addition, future challenges for Thai FDI include competition from competitors like Vietnam and Malaysia for foreign investment, which have similar target industries and incentives to Thailand. However, the Board of Investment (BOI) has adjusted investment promotion conditions, effective July 2568, for industries at risk from US tariffs. For example, it has adjusted conditions for existing projects in the automotive and electronics industries, suspended promotion of new projects with oversupply or trade barriers, such as solar cells and steel. Furthermore, it has encouraged industries with potential environmental risks, such as metals, chemicals, and plastics, to locate in industrial estates.

Thai entrepreneurs should therefore accelerate their adaptation to attract foreign investment from the Friendshoring and Nearshoring trends. This includes enhancing production capabilities and standards to meet global demands, as well as establishing alliances and clusters of production to connect with foreign supply chains. They should also prepare for the transfer of technology, labor skills, and investment in new technologies. Furthermore, businesses related to infrastructure must prepare for investment. The government can play a supportive role, reducing obstacles, and facilitating businesses to attract investment. This includes improving regulations that pose obstacles, reducing redundant procedures, creating an ecosystem conducive to investment, and accelerating trade negotiations to build investor confidence in the Thai government's policy direction to become part of the evolving global supply chain.

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