Thailand subject to weak growth and debt while tensions re-escalate

Thailand is still limited by economic slowdown and a weak balance sheet amid renewed tensions between the United States and Iran, a prominent economist warns. Dr. Pipat Luengnaruemitchai, Managing Director and Chief Economist at Kiatnakin Phatra Financial Group, said Thailand has benefited from stronger exports through electronic supply chains and growing artificial intelligence investment, but economic growth remains comparatively weak compared with regional peers. “A lot of countries in Asia are actually benefiting from this theme. While Thailand is growing in the roughly 2.5% range, other countries in the region would reach higher economic growth. So I think this is a good moment for the region, particularly for those benefiting from electronic supply chains and investment in AI capital expenditure,” he said. While the latest data show Thailand's GDP growth is projected by the Bank of Thailand to reach 2.3% this year, Malaysia is expected to expand by 6.5% and Vietnam by more than 8%. Dr. Pipat said renewed military confrontations between the US and Iran, as well as uncertainty surrounding the Strait of Hormuz, could once again weigh on Thailand's economic outlook, adding that "the competitiveness, the weak balance sheet, high household debt situation will continue to drag down the economic performance." Although geopolitical risks had briefly eased, he said the latest developments in the Middle East show the situation remains highly unpredictable. "It is not clear at this point whether the risks have really eased. Shooting is still happening in the Strait of Hormuz, so the situation in the Middle East remains volatile and is really hard to predict. The risks are still out there," he said. Despite these uncertainties, Thailand has enjoyed stronger exports and investment from the global AI boom. Exports have continued to post double-digit growth, while private investment has increased for the first time in several years, providing some momentum for the economy in the second half of the year. However, Dr. Pipat cautioned that much of the new investment generates only limited domestic value because many AI-related projects, including data centres and electronics manufacturing, rely heavily on imported equipment and components. "Thailand is benefiting to some extent, but these investments carry a lot of import content. You have to import a lot of equipment to produce and export, so the net benefit to the economy is not as high as it seems," he said. Inflation pressure eases On inflation, Dr. Pipat said the recent rise in consumer prices has mainly been driven by higher global oil prices rather than stronger domestic demand. He noted that inflation has eased more than expected after crude oil prices retreated from recent peaks, reducing pressure on households and businesses. "The latest inflation reading came in lower than the market expected. If there is no further escalation in the Middle East and another spike in oil prices, we expect inflation to peak at around 3% to 4%, rather than 4% to 5% as many had feared," he said. As inflation is being driven primarily by supply-side factors, particularly energy prices, he believes there is less urgency for the Bank of Thailand to raise interest rates. "The inflation we are seeing is mainly cost-push inflation, not demand-driven inflation. Therefore, the need for further interest rate increases is probably lower than before," he said. Property market remains under pressure Dr. Pipat also expects Thailand's property market to remain subdued as households struggle with high debt while banks continue tightening lending standards. He said financial institutions have become more cautious about approving mortgages because of rising non-performing loans and elevated household debt. "Real estate is a debt-financed purchase. Without bank lending, it is very difficult to drive housing sales," he said. At the same time, excess housing inventory continues to weigh on the market, with current sales unlikely to absorb existing supply for at least another two years. "It will take time for the market to clear the oversupply and for banks to become more willing to lend again. Until then, the real estate market is likely to remain relatively quiet," he said. Focus on long-term investment Looking ahead, Dr. Pipat said fiscal stimulus should focus less on short-term consumption programmes and more on productive investment that improves Thailand's long-term competitiveness. While temporary consumption support, including Thais Help Thais scheme, may be appropriate during risks such as major energy shocks, he argued that such measures should not become permanent. "The fiscal multiplier from consumption support is not very high. The government should focus more on capital expenditure projects, including infrastructure and energy transition, that can improve Thailand's long-term economic readiness and generate stronger returns," he said. Although Thailand may have passed the weakest point of this year's economic slowdown, he said the country's long-term challenges remain unresolved. "We have probably seen the worst because of the war. Without the conflict, global and regional momentum was improving, and Thailand was starting to benefit from higher exports and investment," he said. "In the second half of the year, we should see some recovery, but the risks remain. More importantly, Thailand still has not solved its competitiveness problem. While some sectors benefit from these new global trends, many traditional industries are still losing competitiveness. That is where the government should focus its attention."