SCB EIC indicates that Thailand should prepare for a new round of tariff negotiations with the US, fearing an impact on exports.

SCB EIC has revised its 69 GDP growth forecast for Thailand upward to 2.2%, but warns that Thailand should prepare for a new round of US tariffs. The US is monitoring excess capacity while domestic purchasing power is weakening, despite the government's accelerated "Thailand Helps Thailand" economic stimulus measures.

On September 15, 2569, Dr. Yanyong Thaicharoen, Chief Research Officer for Economics and Sustainability at the Economic and Business Research Center, Siam Commercial Bank (SCB EIC), revealed that SCB EIC projects Thailand's economy to grow by 2.2% in 2569 and 2.1% in 2570. This growth is primarily driven by the global AI investment cycle, positively impacting electronics exports and foreign direct investment in the digital and technology sectors.

Looking ahead, the Thai economy faces challenges from a clearly uneven recovery between sectors. Future industries and businesses related to digital technology, green energy, and connectivity are becoming key drivers, while energy-intensive businesses, those reliant on domestic purchasing power, and real estate and construction remain sectors that need to adapt quickly.

Although the overall Thai economy still receives momentum from exports and private sector investment, particularly in high-tech sectors, this recovery has not been evenly distributed. Households face limitations in income and purchasing power, businesses, especially SMEs, struggle with competitiveness and debt burdens, while government fiscal constraints are projected to increase.

Therefore, Thailand's key challenge is not just to sustain the economy in the short term, but to urgently restructure the economy so that investment in new industries can create added value domestically. At the same time, it must help businesses and workers in affected sectors adapt to the new economic model.

"Exports and private investment" take the lead.

The structure of Thailand's GDP growth has changed significantly in recent years, with exports and private investment playing a more prominent role, while household spending remains sluggish despite government measures to support it.

In the past, the Thai economy relied heavily on household borrowing and government spending as its main drivers of growth. However, recently, the main drivers of growth have shifted to exports and private investment. Nevertheless, the expansion of both engines is partially offset by imports, reflecting the high level of dependence of the Thai economy on imports.

Another issue to watch is the change in inventory levels. In the second quarter, there was a significant increase in inventory, possibly related to stockpiling oil, gold, and electronics to support future investments or exports.

However, inventory accumulation cannot be a sustainable economic driver because at some point businesses will have to reduce their stockpiles. Therefore, it is necessary to monitor how much impetus from exports and investment can compensate for this.

"Recently, it has been reflected that exports and investment are beginning to recover continuously, especially investment which has shown a positive trend for several consecutive quarters. Meanwhile, private consumption remains sluggish, despite the 'Thai Helps Thai' measures helping to support purchasing power."

BOI indicates continued growth in high-tech investment, boosting the upper echelons of the economy.

Dr. Yanyong further stated that one of the positive signs of the Thai economy is the continuous growth of investment promoted by the Board of Investment (BOI), particularly in advanced technology and industries related to the future economy.

Actual investment data collected from the business sector shows that investment through the BOI expanded by approximately 27% in the second quarter. Although it may slow down somewhat in the second half of the year due to the high base in the same period of the previous year, it remains a significant driver of the economy.

Investment in electronics and advanced technology is also associated with increased inventories, as some businesses import goods and equipment in preparation for future investments or production for export.

This picture reflects the fact that the Thai economy is gaining momentum, beginning to expand from new industries. However, the key question is how much of these investments can Thailand leverage into the domestic economy?

Data centers are booming, but they must meet requirements regarding power, water, and the environment.

The data center business is one of the industries that has attracted significant attention from both Thai and foreign investors. Thailand has strengths in its infrastructure and government investment promotion measures. However, the government is currently reviewing its approach to promoting data centers, considering environmental impact, energy costs, electricity costs, and water usage. This review may cause short-term delays in policy formulation, but it is a crucial step to ensure that promotional strategies are appropriate in the long term.

When considering the benefits of a data center, they can be divided into two key phases: the construction phase and the operational phase. During the construction phase, businesses that will benefit include those in the construction sector, electrical systems, cooling systems, networking systems, and security systems.

As the data center becomes operational, the businesses responsible for power generation, management, operation, and maintenance of the data center will also benefit.

However, a key concern is that Thailand's local content may remain limited, as much specialized equipment and technology has to be imported from abroad, and certain types of labor require specialized expertise from overseas.

Furthermore, questions remain about whether Thailand's infrastructure is sufficient to support a large number of data centers, particularly the electricity and water systems. This is because data centers are a high-energy and water-intensive business, and many areas of the country face limitations in water allocation.

Another issue is employment. While data centers represent a high investment, the number of direct jobs may not be as high compared to other labor-intensive industries.

The government has therefore established a Data Center board to review all related policies. It is expected that the new criteria will consider at least four dimensions, namely:

To maximize economic benefits, how can we ensure that investment is more closely linked to the Thai economy and local supply chains?

Infrastructure development must ensure sufficient electricity and water supply without compromising environmental stability. Impacts on both building sites and the overall environment must be considered. Domestic value creation must ensure that investments facilitate technology transfer and create greater benefits for Thai businesses.

Therefore, delaying consideration of some measures at this time may be necessary to allow Thailand to determine appropriate and sustainable promotional strategies.

The real estate and construction sector remains weak, with fewer new project launches than before.

Contrary to investment in the high-tech sector, investment in the construction and real estate sectors continues to show signs of weakness.

Private sector construction may expand only slightly and remain relatively stagnant, while the area of ​​permitted construction, especially residential areas, continues to decline.

Real estate developers also face pressure from high construction material costs, while the launch of new residential projects, although potentially recovering by around 5% this year, reflects a very low base compared to the past. The number of new projects launched remains relatively low.

Meanwhile, the resale housing market is playing an increasingly important role, with the proportion of resale homes in ownership transfers continuously rising, most recently reaching approximately 57%. This is due to both supply and demand factors. On the supply side, more non-performing assets (NPAs) are entering the system. On the demand side, consumers are more likely to choose resale homes due to the price difference, as purchasing power remains limited.

Exports grew strongly, but were concentrated in "electronics and the United States."

Exports remain one of the key engines of the Thai economy. This year, exports have grown at a high rate, with data showing approximately 18% growth since the beginning of the year. However, a structural analysis reveals high concentrations of growth, with approximately 11% coming from the electronics sector, while nearly half of the growth originates from the US market.

It can be said that electronics and the United States are two very important factors for Thai exports this year.

Electronics exports showed outstanding growth, while most other categories experienced low or stagnant growth. Some agricultural product groups even contracted.

Looking ahead to this year, Thai exports are expected to grow by approximately 16% before slowing to around 6% next year due to a higher base. The electronics sector is also projected to continue expanding driven by increasing global investment in AI, but risks from US tariffs need to be monitored.

The automotive sector continues to show low growth prospects, particularly those affected by tariffs, including tires and auto parts. Furthermore, if the U.S. proceeds with measures to address excess capacity, it could increase pressure on Thai industries.

The US is poised to impose tariffs on excess capacity; Thailand must adapt to the Chinese supply chain.

Dr. Yanyong also stated that another significant risk is the US trade measures. Currently, Thai goods exported to the US have an average tariff rate of approximately 12% after incorporating the effects of forced labor measures.

Thai products can be divided into three groups: those not yet subject to tariffs, those subject to specific tariffs, and those affected by forced labor measures.

The United States is currently considering Section 301 tariffs related to excess capacity, with 16 countries in the group to be monitored, and Thailand is one of them. It is expected that the US may announce initial tariff rates within this month, and the initial rates may be high before entering the negotiation process. Ultimately, the tariffs could be reduced, a pattern that has occurred before with previous measures where the US announced high tariffs before lowering them after negotiations. Therefore, the final outcome still depends on the negotiations between Thailand and the United States.

"It must be acknowledged that Thailand needs to prepare for potentially relatively high tax rates in the initial period, especially regarding measures related to Excess Capacity, for which Thailand is one of 16 countries currently under consideration."

However, Thailand still needs to monitor the risk of being perceived as highly interconnected with China's supply chain, which may require Thailand to adjust its supply chain and be more cautious regarding trade sanctions, including non-tariff measures.

Furthermore, the approval process for goods before exporting to the United States may become more stringent and time-consuming, which will become another cost for Thai exporters.

What does the US want from Thailand? Opening agricultural markets - and monitoring the terms of the FTA.

Dr. Yanyong stated that the US stance reflects an attempt to push trading partners into negotiations and accept certain conditions, which may differ from country to country.

For Thailand, the products that the US wants to see further market accessed are likely to be agricultural products, grains, and meat, as well as other trade measures. Another important point is that the US may want other countries to consider the impact on the US before entering into FTAs ​​with other countries. This is a matter directly related to each country's trade policy. Therefore, Thailand's challenge lies in finding a balance between the benefits to be gained and the costs and drawbacks that will arise from each type of agreement.

On the import side, high-value goods include raw materials, intermediate goods, and capital goods. A portion of capital goods imported is related to domestic investment, while some raw materials and intermediate goods are used in production for export.

"Thailand still has high levels of imports from China and Taiwan, resulting in a relatively large trade deficit when measuring the trade balance according to the customs system."

However, when measured according to the balance of payments (BOP), the deficit figure is lower due to different data recording methods. The key trend is that both the trade balance and the current account balance are showing increasing deficits.

"The trade balance is expected to be in deficit by approximately 1.2-1.7%, while the current account balance could be in deficit by around 2.5-3%. If oil prices remain high, there is a possibility that the current account balance could approach 3%, which could affect currency stability and external economic factors in Thailand."

Of the five major challenges that Thailand must urgently address, the key issues arising from the aforementioned economic picture can be summarized into five key approaches for the country.

1. 1. Attracting new investments into the Thai economy is insufficient; Thailand must establish conditions and create an ecosystem that connects new investments more closely with Thai businesses.
   2. Skills Development for the Thai Workforce: Thai workers need to have their skills upgraded to support new industries, especially technology, digital technology, and future businesses, so that they can integrate into new production chains.
   3. To build a local supply chain, Thailand needs to enhance the readiness of its domestic manufacturers so that they can become part of the supply chain of new businesses and receive technology transfer, rather than simply being a country that receives investment and imports equipment from abroad.
   4. Reducing investment constraints requires easing limitations on capital, technology, and regulations to incentivize new investment, especially in high-potential industries.
   5. Targeted support for lower-income groups is crucial. Businesses with potential should receive assistance in debt restructuring, efficiency improvement, and workforce skills upgrading. However, for highly vulnerable businesses, the government cannot protect all existing jobs.

"The goal should therefore shift from preserving all jobs to preserving future employability by helping workers migrate to new, promising industries."

The baht weakened in line with high oil prices; attention is now focused on the Fed and the Bank of Thailand's policy.

The Thai baht tends to weaken when oil prices rise, as Thailand is dependent on energy imports. At the same time, the direction of US monetary policy is a significant factor affecting currencies. If the US Federal Reserve pursues a tighter monetary policy, it will impact capital flows and currencies in the region.

However, the policy interest rate will remain at 1% throughout this year and into 2570 to help support the economy.

The challenge this time is different from the past because, even though the economy is not yet strong, inflation is still at a level that requires caution, making it more difficult to lower interest rates to 0.5% like in the past.

Therefore, the Bank of Thailand may need to strike a balance between managing the economy and maintaining price stability, using targeted policies to assist businesses in need rather than relying primarily on interest rate policy.

Read news related to the economic situation across Thailand here.