Thailand economy likely lost steam in second quarter on weak domestic demand: Reuters poll

Thailand's economy is estimated to have slowed to 2.5% year-on-year in Q2 2025 from 3.1% in Q1, primarily due to weak household consumption offsetting gains from strong, tariff-frontloaded exports. In response, the Bank of Thailand cut its policy rate by 25 basis points to a three-year low of 1.50% to stimulate domestic demand. However, analysts anticipate a material weakening to 1.7% GDP growth in H2 2025 as export momentum fades and tourism struggles, despite the central bank's assessment of no technical recession risk.

Analysis

Thailand's economy is exhibiting clear signs of deceleration, with consensus forecasts pointing to a slowdown in year-on-year GDP growth to 2.5% in the second quarter from 3.1% in Q1. This slowdown is primarily driven by faltering domestic demand, as weak household consumption, burdened by high debt, offset the strength seen in exports. Notably, the robust export performance was largely a temporary phenomenon caused by companies front-loading shipments to the U.S. ahead of anticipated tariff hikes. In response to these domestic headwinds, the Bank of Thailand has adopted a dovish monetary policy, cutting its key rate by 25 basis points to a three-year low of 1.50%, its fourth reduction in ten months. The forward outlook is markedly cautious; analysts project growth will weaken materially to 1.7% in the second half of 2025 as the front-loading effect fades and the full impact of U.S. tariffs materializes, compounded by a struggling tourism sector. While a central bank official has downplayed the risk of a technical recession, private forecasts for Q3 and Q4 growth are as low as 1.3% and 0.9% respectively, indicating significant near-term economic challenges.

Key Decisions for Investors

• Given the deteriorating economic outlook with projected GDP growth falling below 2% in H2 2025, investors should consider adopting a cautious or underweight stance on Thai equities and other assets sensitive to domestic growth.
• Monitor high-frequency data for Q3, specifically export volumes and tourism arrivals, to assess whether the headwinds from U.S. tariffs and weak tourism are as severe as analyst forecasts suggest.
• The Bank of Thailand's aggressive easing cycle will likely continue to place downward pressure on the Thai Baht (THB); therefore, hedging currency exposure on existing Thai investments may be a prudent strategy.