SCB EIC hopes the Monetary Policy Committee (MPC) will cut interest rates in December to curb deflation.

SCB EIC indicates the Thai economy is at risk of "growing below 1%" in the second half of the year, and expects the Monetary Policy Committee (MPC) to cut interest rates in December to curb deflation.

24 Oct 2568 SCB EIC reveal The Thai economy is expected to continue experiencing low growth this year and next, with growth likely to average less than 1% in the second half of the year and the first half of next year.

SCB EIC estimates that the Thai economy will grow by 1.8% and 1.5% this year and next, respectively, with a risk of growth below 1%. In the second half of this year and into the first half of next year, exports are showing signs of slowing down after the United States imposed a 19% tariff on Thailand, reflecting the need for economic support policies. Although August export figures still expanded by 5.8%, the growth slowed significantly from the previous month. Product categories that saw growth stem from specific factors include:

1. Accelerating the export of electronic products that are not yet subject to additional US tariffs, and partly benefiting from the global electronics upturn and the global AI investment trend.
2. Unwrought gold exports accelerated in line with gold prices. Excluding this specific factor, August export figures contracted by approximately -2%, reflecting the impact of US tariffs that are clearly putting pressure on Thai exports. Looking ahead,

SCB EIC expects export value for the remainder of this year and into 2569 to be at high risk of contraction, which will significantly drag down Thai economic growth, particularly in the second half of this year and the first half of next year.

Private consumption in the future remains a concern, with household debt to GDP remaining high at 86.8% in Q2 2568. Although the household debt ratio has been steadily decreasing, the main reason is that household debt has shrunk due to both decreased borrowing demand in line with debt repayment ability and stricter lending practices due to concerns about high non-performing loans. Meanwhile, the overall consumer confidence index remains low, although it has improved somewhat in the short term due to political clarity and the new government's economic stimulus measures.

Headline inflation is expected to remain negative for several more months and will not return to the inflation range this year or next. This is primarily due to the declining global energy prices and the new government's cost of living reduction policies. Diesel prices at the pump are expected to average below 30 baht per liter next year, in line with global crude oil prices. This will help the Oil Fund's status return to positive territory in Q1 2569.

Regarding the outlook for the average headline inflation rate for 2025, it is expected to contract for the first time in four years at -0.1%. While inflation may return to positive levels in 2026, it will remain low at 0.2%, significantly below the inflation target of 1-3%, amid a weakening trend in domestic demand.

SCB EIC assesses that although Thailand has not yet entered a deflationary state, the risk of deflation has significantly increased, as reflected by

(1) General inflation has been negative for 6 months and is likely to remain negative until Q1/26.

(2) The proportion of products whose prices have decreased has continuously increased to 43% of the inflation basket as of September (previously 40%). Although the products whose prices have decreased are mostly in the energy and fresh food categories, whose prices fluctuate according to government measures and supply factors, they are beginning to spread out to more basic product prices.

(3) Household income recovery is slow and has declined in the first half of this year for the first time since the COVID-19 outbreak. This, coupled with the high debt burden and the continued contraction of household credit, will put downward pressure on domestic demand. Meanwhile, businesses face intense price competition from imported Chinese goods and have little leverage to raise prices amid weak demand, further pressuring profit margins, investment, and employment in the future, creating a negative economic cycle.

The new government's Quick Big Win policy focuses on supporting the economy in the short term, but its effect on stimulating GDP growth is still limited.

The Anutin government announced its "Quick Big Win" policy package, aiming for "short-term stimulus, long-term results, and widespread distribution." Despite the government's announcement that it would dissolve Parliament within four months of the policy announcement, many policies are aimed at immediately stimulating household consumption, such as the "Half-Half Plus" program, which offers a budget of 6.7 billion baht, expediting spending in the first three months of fiscal year 2026, with approximately 150 billion baht allocated from the central budget for economic stimulus. Additional measures, such as tourism stimulus and accelerated budget disbursement, are also being considered.

SCB EIC assesses the impact of the "Half-Half" policy on stimulating GDP beyond the original estimate, but it remains limited due to the allocation from other project budgets, not new funds. Furthermore, some of the measure may leak out of the economy, such as spending on imported goods or spending at participating merchants outside the tax system.

The Monetary Policy Committee (MPC) held the interest rate steady at 1.5% in October, as expected. SCB EIC maintains its view that there will be two more rate cuts in December and early next year.

The SCB EIC maintains its forecast for a policy interest rate cut to 1.25% at the December meeting, followed by a further cut to 1.0% in early 2569. The Thai economy is expected to continue to slow in the second half of this year and into the first half of 2569, as vulnerabilities in the business and household sectors continue to put pressure on domestic demand.

Thailand's financial conditions remain highly tight, inconsistent with the country's economic growth rate, which is far below its potential. SCB EIC therefore assesses that the Monetary Policy Committee (MPC) will cut the policy interest rate again at its December meeting and again early next year to 1%. Monetary policy will play a role in mitigating the vulnerability of the Thai economy going forward.

The global economy will begin to come under pressure from US tariffs for the rest of the year, with geopolitical and global political risks rising.

Global economic activity showed signs of slowing down somewhat towards the end of the third quarter, but continued to expand at a healthy pace. This was partly due to the acceleration of economic activity before the US tariffs, easing monetary and fiscal policies in several major economies, and strong investment in AI-related industries and exports.

However, the global economy is likely to slow down in Q4 2568 and 2569 due to increased impacts from US tariffs. This is reflected in a decline in new export orders and a sharp slowdown in employment. This view is consistent with several international organizations, such as the OECD and the IMF, which have revised their 2568 global economic forecasts slightly higher than their previous estimates, but still show a slowdown compared to 2567. They also project that global economic growth in 2569 will be lower than in 2568.

Geopolitical and global political risks heighten as US threatens to impose another 100% tariff on China starting November 1st after China further curbs on rare earth exports and begins charging fees on US-flagged vessels.

The United States is also facing a government shutdown as a result of political conflicts. While this has happened frequently in the past and has not significantly impacted the economy and financial markets, this time the risk to the US economy is increased as President Trump has threatened not to pay back wages or lay off employees, and the situation is protracted. Japan is facing political uncertainty after the Komeito Party withdrew from the coalition government, potentially resulting in the LDP being eliminated from government for the first time in 13 years.

Major central banks (except Japan) are likely to ease monetary policy to ease economic pressures. The US Federal Reserve (Fed) is likely to cut interest rates by another 50 bps (total 75 bps) this year and another 50 bps in 2569 due to the deteriorating labor market, although inflation is still not back within target and risks further acceleration from tariffs.

SCB EIC maintains its expectation that the Fed will cut interest rates again at its October 28-29 meeting, although the release of economic data may be delayed due to the closure of several government agencies. This is because some private sector data is still available for use. The European Central Bank (ECB) is likely to cut interest rates by another 25 basis points to 1.75%, concluding this cycle of rate cuts as the US tariffs become clearer.

The People's Bank of China (PBOC) is likely to cut interest rates by another 10 bps (total 20 bps) in 2568 and another 20 bps in 2569, citing broader economic indicators of slowing growth. The Bank of Japan (BOJ) is likely to hold rates steady for the rest of the year and resume raising rates in 2569 after the impact of US import tariffs, political factors and union wage negotiations become clearer in the first quarter of 2569.

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