Thailand faces an economic crisis as PM Paetongtarn grills tourism chiefs over plunging visitor numbers. Krungthai warns GDP may slump to 0.7% if US tariffs hit, Moody’s cuts outlook with Vietnam, Philippines poised to overtake Thailand amid export, debt woes.
Prime Minister Paetongtarn Shinawatra on Friday chaired a meeting at Government House, where she pressed Ministry of Tourism and Sports officials—led by Minister Surawong Thienthong—over declining tourism figures. At the same time, one of Thailand’s leading banks warned that GDP growth could fall to as low as 0.7% this year if negotiations with the United States falter. It marks an unprecedented moment for Thailand, which now faces the very real prospect of a credit downgrade. That risk was emphasised on Wednesday when Moody’s revised the country’s credit outlook from stable to negative.
One of Thailand’s leading banks on Friday warned that the Thai economy may only grow by 0.7% in 2025. This would happen if the government fails to significantly bring down the proposed 36% reciprocal rate proposed by the United States on Thai exports on April 9th last.
This is the worst-case scenario of two projected by Krungthai Compass, the research unit of Krungthai Bank.
It says the economy could still manage 2.0% growth if sectoral tariffs are capped at 10% after US negotiations.
US tariffs to begin July 8th, threatening GDP as Thai SMEs face devastating export revenue or market share losses
Afterwards, the United States issued a 90-day moratorium, meaning the new tariffs are scheduled to impact on July 8th next. The bank estimated that 4,990 small enterprises were directly impacted by the Trump administration’s tax on Thai imports.
These SMEs contribute about 2.2% of national GDP, with those in automotive parts, steel, and agriculture hit hardest.
In particular, it highlighted an assessment by the Office of Small and Medium Enterprises Promotion (OSMEP). It forecasts that Thailand will lose ฿38.3 billion in sales in 2025 due to the tariff regime. That loss figure includes both direct export hits and the knock-on effects of reduced investment.
Krungthai Compass, the research arm of the bank, was particularly concerned about revised International Monetary Fund (IMF) forecasts.
These show global growth down to 2.8% this year, while in the United States, there is a 37% chance of recession, with a 30% chance of growth falling below 2%. The IMF had earlier predicted global growth of 3.3%, but ongoing trade tensions forced it to downgrade.
Global growth downgraded as Thai exports face sharp slump in secnd half. Domestic economy also faces losses
Meanwhile, the Eurozone is only predicted to grow by 0.8%, with Japan’s growth pegged down to 0.6%.
The IMF growth rate for China is smaller, down at 4%. Notably, this is based on flawed economic data published by Beijing. Thailand’s own growth forecast was also revised downward by the IMF from 2.9% to 1.8%, a warning sign.
Overall, world trade is projected to fall back, achieving only 1.7% growth, well down from 4.2%. Certainly, this seems unduly optimistic as the World Trade Organisation (WTO) presently says that world goods shipments will contract by 0.2% in 2025, instead of a projected 4% growth. Krungthai Bank warns the slow trade decline could scar the Thai economy for years, echoing post-COVID damage.
Notably for Thailand, this all represents a cumulative crisis which started with the first trade war in 2018. Since then, the kingdom’s growth has disappointed year after year.
Comparatively, it has been left behind while its Southeast Asian peers have progressed. Vietnam and the Philippines have surged ahead, helped by strategic responses and stronger trade ties with the US.
Moody’s warning intensifies pressure as Thailand faces credit risk amid unresolved structural debt levels
Moody’s on Wednesday downgraded Thailand’s outlook from stable to negative. On Thursday, it issued a similar warning for the country’s banks and main financial institutions.
At this time, the crisis is fanned by concern about US trade negotiations and the Thai government’s fiscal strategy. In turn, the country may face a credit downgrade, which would see its banks downgraded. This downgrade could happen despite most Thai public debt being domestically held, a factor that usually lowers risk.
Significantly, on Wednesday, Moody’s noted the country’s high levels of private and public sector debt. In addition, its chronic structural problems, which no Thai government has properly addressed in the decades prior.
Chief among these, of course, is its rapidly aging population. Krungthai Bank also cited underinvestment and slow productivity growth as barriers to sustainable recovery.
On top of it all, this week, Minister of Tourism and Sports Surawong Thienthong on Wednesday described Thailand’s foreign tourism industry as also in crisis. Afterwards, on Friday, Prime Minister Paetongtarn Shinawatra held a meeting at Government House.
Thailand’s tourism sector crisis erupts as Chinese visitors fall sharply and flights face cancellation as demand falls
Although a routine meeting, it focused on the fall in foreign tourism numbers this year. China’s outbound travel slump, compounded by flight cancellations, is hitting Thai tourism revenues especially hard.
Earlier on Thursday, Minister Surawong blamed negative media coverage for the crisis. On Friday, the deteriorating world economy and indeed the March 28th earthquake tremors in Bangkok were cited.
In particular, there is concern about a 17% drop in Asian and short-haul visitors. Indeed, the flow of Chinese tourists is slowing by the day.
So much so that Minister Surawong warned on Wednesday that up to 68% of flights between Thailand and China may face cancellation in the coming quarters. Tour operators report bookings from China falling faster than expected, with no short-term rebound in sight.
At this time, Thailand risks being overtaken by Vietnam very shortly. It is presently Southeast Asia’s second-largest economy after Indonesia. However, the Philippines is also expected to overtake Thailand by 2028. Vietnam has already attracted firms seeking to exit China’s supply chain amid trade friction with the US.
Vietnam and the Philippines are closing in fast as Thailand struggles with export and tourism shocks
In 2024, Thailand’s economy’s GDP was $526 billion compared to $476 billion for Vietnam. However, with rapid export growth, Vietnam is projected to reach $676 billion by 2029. Similarly, with the Philippines, it recorded $461.5 billion in 2024, but this is expected to overtake Thailand by 2028.
Indeed, the Philippines, with its close relationship with the United States, stands to benefit substantially from the Trump tariff regime.
The country was only hit by a 17% tariff rate. Under Ferdinand Marcos Jr., the country has moved closer to America, allowing US military bases as it defends itself against Chinese aggression.
Thailand faces full reciprocal tariffs in additional to sector tariffs on steel and autos if it cannot secure US exemptions.
In the meantime, Vietnam, although faced with a 46% tariff barrier, has reacted quickly and nimbly to the US tariff challenge. Its leadership anticipates a 22-28% tariff or tax outcome. They’ve already begun diverting supply chains and negotiating bilateral breaks to keep exports moving.
Thailand’s economy faces decade of stagnation as baht strength and export losses compound crisis
This leaves Thailand reeling and facing a decade of lost growth, including the massive 6.1% contraction seen in 2020. Indeed, the kingdom is now at risk of being ranked at the bottom of the ASEAN GDP growth table. This would leave it even behind civil war-torn Myanmar.
Krungthai estimates the total economic loss from the trade war could hit ฿1.6 trillion over the next five years.
Undoubtedly, this is an economic crisis for Thailand, one which may worsen, particularly if the country faces a raft of credit downgrades. This comes despite low levels of foreign borrowing. Indeed, up to 98% of all Thai public debt is locally sourced.
Of course, in Thailand’s midst is another cruel irony. Market experts suggest that the baht will strengthen beyond ฿33 to the dollar in the coming week. This will happen if US jobs data disappoints and the US Federal Reserve moves ahead with rate cuts.
Consequently, this will make both Thailand’s exports and its foreign tourism industry less competitive. Business leaders warn that unless baht volatility is contained, it could also trigger more SME closures.
Finance minister proposes VAT overhaul to close gaps and raise ฿200 billion from smaller firms and traders
Certainly, this may have been on the mind of Minister of Finance Pichai Chunhavajira on Thursday. At an event to celebrate 150 years of his ministry, he floated the idea of VAT for all businesses. He proposed a “VAT Category 2” targeting smaller firms to widen the tax net and boost state revenue.
Basically, he proposes doing away with the ฿1.8 million cap threshold. This allows small Thai enterprises not to have to charge VAT but at the same time absorb VAT costs.
The new category could net ฿200 billion more annually, easing pressure on debt and funding infrastructure.
Undoubtedly, this will impose a heavy burden on Thailand’s already struggling small business concerns, those that are registered. It is estimated that 45-50% of the Thai economy is still in the informal sector. Critics argue that enforcing VAT here will be tough, and might push more firms back into the shadows.
Government eyes higher taxes as weak revenue base leaves Thailand vulnerable to financial shocks
In short, Mr. Pichai is seeking more government revenue instead of borrowing more, given the eyes of the financial world are on Thailand’s high borrowing rate, presently at 64.4% of GDP. He says most spending is locked in fixed costs like civil servant wages, so new taxes are the only quick fix.
Officials defend government. Moody’s downgrades Thailand’s outlook from stable to negative in new note
Central bank to lower rates as Thailand prepares for tariff crisis as it decides between US and China
Thaksin announces a change in trade and industrial policy. Sounded much like a pivot towards the United States
On Thursday, Mr. Pichai noted that previously Thailand’s government coffers received 17% of GDP in tax revenue. The figure at that time was 15.5%. Notably, this should be compared to European Union member states, where the rate is generally 40%. Meanwhile, in the United States, it is 25.25%, and in the United Kingdom, it is 35.3%.
Thailand’s narrow tax base makes it especially vulnerable during global downturns and fiscal shocks.
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Further reading:
Thaksin does not rule out joining talks in US as Thai team finalises plans. They fly out on Thursday
Trump’s remaking of World trade, if it works, will force Thailand to decide between the US and China
US offers a 90-day tariff pause but Thailand must move faster as it already faces shaved GDP in 2025
PM addresses the nation in shock over last week’s earthquake and this week’s Trump tariff bombshell
