Bank of Thailand calls for a weaker baht as Thailand’s economy falters, GDP slows, exports and tourism decline, household debt rises, banks tighten credit and second-half growth is projected to fall sharply amid ongoing fiscal and political risks.
Thailand’s economy is weakening, with indicators pointing to a crisis if no action is taken. GDP rose 3% in the first half, surprising many, driven by front-loaded US exports despite a 7.4% drop in foreign tourism. Tax revenue is falling, banks are tightening credit and economists warn of a second-half contraction. Official projections show 1% growth, but conditions are grim. Over the weekend, Bank of Thailand Governor Vitai Ratanakorn called for a weaker baht to support an economy in freefall. The currency, however, has astonishingly risen by 7% in the last year, a phenomenon believed to be linked to illicit foreign funds.
The previous Pheu Thai Party government maintained for two years that Thailand’s economy was in crisis. Former Finance Minister Pichai Chunhavajira repeatedly called on the central bank to lower interest rates. Governor Vitai Ratanakorn of the Bank of Thailand stated this week that the baht is too high and should weaken.
Despite a 7.4% drop in foreign tourism this year, first-half GDP grew 3%. The growth resulted from accelerated US exports. In April, reciprocal trade measures from the Trump administration prompted US importers to front-load exports to avoid tariffs. Tourism and domestic consumption nonetheless lagged during this period.
Since mid-year, the economic situation has deteriorated. Thailand’s trade agreement with the United States is in abeyance. On Friday, November 14th, the U.S. Trade Representative’s office suspended negotiations.
Prime minister ends Cambodian peace deal and warns trade deal with US could be delayed until 2025
The suspension followed Prime Minister Anutin Charnvirakul’s announcement ending the Thai-Cambodian peace deal. He also delivered nationalist rhetoric regarding border demarcation.
The prime minister later insisted he discussed the matter with US President Donald Trump in China. Trump reportedly suggested lower tariffs if border demarcation is expedited. The Ministry of Commerce said the US-Thai trade deal will be finalised by the end of 2025.
Apprehension is growing in the business community. The suspension letter issued on Friday November 14, has not been withdrawn. At the same time, economists warn of a second-half economic slowdown. The government’s “half-half” stimulus package has failed to stabilise growth.
Banks have become cautious, severely limiting lending in particular to small and medium enterprises. The National Economic and Social Development Council (NESDC) projects 2025 GDP growth at 2%, implying only 1% in the second half. K-Research predicts flat growth. Some analysts warn that contraction could reach up to 5.5%.
Household debt reached approximately 90% of GDP. Average income is 13% below expenses, about ฿2,200 per month. Borrowing is necessary to maintain consumption. Lending has tightened, restricting private spending. Private consumption growth fell to 1.3% in the first half of 2025.
Baht strength, weak inflation, and monetary policy raise concerns for growth and consumption stability
The baht appreciated roughly 7% over the year. Its strength has hurt exports and tourism. Governor Vitai said the central bank wants the baht to be weaker. He also noted interest rates could be cut further. The baht reached a four-year high in September.
Its strength is linked to gold correlations, a weaker US dollar, and the current account surplus. That is the official line. But the influx of hundreds of billions of baht in unaccounted foreign funds is presently being investigated. It has been linked by analysts to Cambodian scam centres.
Headline inflation has remained negative for seven months. Authorities attribute declines to supply-side factors. The Monetary Policy Committee held the key rate at 1.50% on October 8. This followed four rate cuts over the previous year. The next meeting is December 17, with further reductions expected.
GDP slowed to 1.2% year-on-year in Q3, the weakest pace in four years. Quarter-on-quarter, GDP contracted 0.6%. The Bank of Thailand projects 2.2% growth in 2025 and 1.6% in 2026. Last year, growth was 2.5%. US tariffs, household debt and the strong baht are major headwinds.
The government launched a “Connect the Dots” task force to track irregular fund flows. A special team will monitor suspicious online gambling and scam accounts. Governor Vitai said the central bank can mitigate currency volatility but cannot reverse trends.
Commercial bank profits fall and SME credit risk rises as lending contracts further
Commercial bank profits fell 6.9% in Q3 to ฿66 billion. The decline was due to lower net interest income, shrinking loans, and debt relief measures. Total banking system credit contracted 1.0%, marking the fifth consecutive quarter of negative loan growth. SME loans fell 4.0%, and consumer loans also declined. Large corporate loans grew slightly.
Somchai Lertlarpwasin, assistant governor at the Bank of Thailand, said the contraction is less severe than the 3% drop in the 2009 “Hamburger Crisis.” However, the current decline may be more prolonged. The NPL ratio rose slightly to 2.94%. Stage 2 loans increased to 7.24%, partly due to the reclassification of large corporate borrowers. SME NPLs remain high.
Debt relief programs are ongoing. The “You Fight, We Help” initiative continues. A new program, “Pay Off Debt Quickly, Move Forward,” targets credit card and unsecured loan borrowers. The bank is monitoring repayment capacity in SMEs and households.
Household debt restricts consumption. When borrowing is limited, spending falls. Income gaps prevent loan repayment. Banks have recalled good loans. Negative loan growth has persisted for 13 months. Liquidity injections have not translated into new lending.
Tax revenue and tourism decline under pressure from weak growth and a strong baht
Tax revenue is under pressure. Low GDP growth caused a 0.7% shortfall in the first half. Revenue targets assumed 3.5% growth. First-half GDP reached 3.0%. The second half is projected at 1.0%. VAT rate increases are under consideration.
Tourism remains weak. Foreign arrivals dropped 15.2% in June. Year-to-date foreign tourism is down 7.4%. The strong baht and global trade tensions contributed. Tourism revenue has declined.
Exports are slowing. Early-year front-loading boosted first-half GDP by 3%. US tariffs on August 8 reduced exports. Trade with China and other partners has also slowed. Analysts estimate the second-half GDP contraction could reach 5.5% due to these factors.
The baht is Asia’s second-best-performing currency, gaining 6% against the US dollar in 2025. Indeed, this figure rises to 12.8%, dating back to May 2024. Its strength stems from a weak dollar, the current account surplus, and gold correlations. Governor Vitai supports a weaker baht to improve exports and tourism. Interest rates may be lowered to stimulate growth.
Banking system liquidity remains high but SME and household credit risk persists
The banking system remains liquid and maintains a 21.3% capital adequacy ratio. Outstanding NPL balances fell to ฿544 billion due to slower new NPL formation. Stage 2 loans are rising, highlighting continued credit risk. Banks remain cautious in lending, particularly to SMEs and households.
GDP projections show second-half challenges. NESDC estimates 1.0% growth in the second half of 2025. K-Research projects 0.0%. Some critical analysts suggest contraction could reach 5.5%. Export deceleration, weak consumption and high household debt contribute.
Political uncertainty continues. A national election is expected at the end of January. Corruption investigations remain active. These factors undoubtedly compound economic risks.
Household debt pressures persist. Average income remains 13% below expenses. Borrowing is necessary to maintain consumption. Lending limitations exacerbate the gap. Commercial banks have reduced SME and consumer loans for five consecutive quarters.
Fiscal and monetary pressures continue as exports, tourism, and GDP face multiple headwinds
Tax collection will stay below target. Revenues fell 0.7% in the first half of 2025. Low GDP growth will continue to pressure public finances. Authorities are monitoring grey capital and suspicious financial flows.
Tourism and exports face dual pressures. Foreign arrivals fell 15.2% in June. Export growth decelerated due to US tariffs and weaker global demand. Combined, these factors threaten GDP and fiscal targets.
Monetary policy remains active. Interest rate cuts are under consideration. Governor Vitai emphasised controlling currency volatility. Policy tools aim to support exports, tourism and financial stability.
Commercial banking shows mixed results. Q3 net profits dropped 6.9% to ฿66 billion. Lending has contracted for five quarters. SME loans fell 4.0%, and consumer loans also declined. NPLs remain moderate at 2.94%. Stage 2 loans rose to 7.24%. Debt relief programs continue.
Thailand faces multiple structural, fiscal and monetary risks as the second half of 2025 looks bleak
Thailand faces multiple challenges. Household debt, slow consumption, declining tourism, export deceleration and the strong baht constrain growth. Political uncertainty adds to risk.
The second half of 2025 is projected to be weaker than the first. GDP may reach only 1.0%. SME and household debt pressures remain. Export and tourism declines continue. Fiscal strain persists. The kingdom is also facing the prospects of a sovereign credit rating downgrade, with both Moody’s and Fitch changing the outlook from stable to negative this year. This indicates a 50% chance of a downgrade.
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Policy responses continue. Interest rates may be reduced. The baht may weaken gradually. Grey capital is being examined. Fiscal constraints and lending caution remain. Debt relief targets vulnerable borrowers.
Thailand’s economic outlook, meanwhile, appears fragile and indeed bleak. Structural weaknesses masked in 2025 by early-year export gains are growing in influence. Household debt, consumption constraints, slow lending, tourism declines and a strong baht are the central risks right now, tending sharply towards the downside.
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