World Bank cuts Thailand's 2025 GDP growth forecast to 1.8%

The World Bank has downgraded its forecast for Thailand's GDP growth in 2025 to 1.8%, contrary to the Bank of Thailand's (BOT) prediction of 2.3%. This revision comes in light of the ongoing trade war, which has impacted exports.

According to the World Bank's Thailand Economic Monitor report, the institution has revised its growth forecast for Thailand's economy in 2025 down to 1.8%, and has also lowered its 2026 forecast to 1.7%.

The report highlights that trade policy uncertainty was a key factor not considered in the Bank's February projections, which had anticipated a growth rate of 2.9%. This uncertainty has had a significant global impact, directly affecting exports and slowing domestic investment.In its East Asia and Pacific Economic Update, released during the IMF-World Bank Spring Meeting in April, the World Bank revised its Thai GDP forecast for 2025 to 1.6%.

Kiatipong Ariyapruchya, Senior Economist for Thailand at the World Bank, noted that the uncertainty surrounding trade policies will slow exports in the second half of the year. 

While exports showed strong figures in the first quarter, this was mainly due to a surge in exports before a 90-day tax deferral imposed by US President Donald Trump. With this factor neutralised, the forecast for GDP growth stands at 1.8%, according to the report.

Another factor weighing on growth, Kiatipong added, is the concerning decline in Chinese tourist numbers, which remain below pre-Covid levels due to safety concerns in Thailand, pushing Chinese tourists to other Asian destinations.

On the outlook for prices of goods and services, the World Bank noted that inflation in Thailand is particularly noteworthy, as it has remained near or below 0%, under the BOT's target range.

The main reasons for this low inflation are two key factors:


Weak domestic demand: The World Bank has pointed to this as a long-standing issue, now exacerbated by historically high household debt, which acts as a burden for Thailand and leads to reduced consumption.
 
Price controls: Thailand has implemented price controls on some goods and services, such as electricity, which has kept the prices of many items relatively stable, contributing to low inflation.


“Although inflation is low, it is not in a state of deflation, which would involve a broad-based decrease in the prices of all goods and services. The reduction in prices is mainly related to energy costs,” Kiatipong explained.



Earlier, the BOT’s Monetary Policy Committee (MPC) revised its forecast for Thailand's GDP growth in 2025 upwards to 2.3%, based on optimistic export figures for the first quarter and improving economic data for the second quarter.

However, Kiatipong pointed out that the discrepancy between the BOT and the World Bank’s forecasts stems from the BOT’s reliance on better-than-expected GDP figures from the first quarter, whereas the World Bank sees the strong performance in Q1 as temporary, driven by accelerated exports, with a slowdown anticipated in the second half of the year.

In addition to short-term challenges arising from the trade war, Kiatipong identified three major long-term challenges facing the Thai economy, which he likened to “hills” that must be overcome:


Aging population: A shrinking workforce is making it harder to drive economic growth.
 
Human capital and digital skills: There is a shortage of digital skills, and the education system is not yet aligned with the demands of the digital economy. While Thailand has made strides in robotics in industry, there is still a lack of skilled workers to manage and control these technologies.
 
Fiscal policy: Proper management of the budget, expenditure allocation, and revenue generation is critical to investing in the future without burdening future generations with excessive debt.




Thailand's economic potential continues to decline over the past decade

On Thursday, the Senior Economist for Thailand at the World Bank stated that beyond short-term growth concerns, Thailand faces numerous structural challenges, including issues with technology, an ageing population, and shrinking fiscal space. 

These factors have all contributed to a steady decline in the "growth potential" of Thailand's GDP, which has dropped from 3% to 2.6-2.7% over the past 10 years.

However, Kiatipong noted that if the Thai government invests in infrastructure focused on digital technology, enhances human capital, seeks new trade partnerships, liberalises the service and agriculture sectors, or reduces barriers to work and business, the country’s growth potential could increase, possibly reaching 3.4%.

(2025/07/03-00:00)