The Office of Industrial Economics (OIE) has downgraded its growth forecast for Thailand's manufacturing production index (MPI) this year to a contraction ranging from -2.8% to -3.8%.
The office also cut its outlook for industry GDP growth to a range of -1.5% to -2.5%.
The revision is the result of the global economic slowdown, the decline of export sector and a tourism segment that has yet to fully lift the domestic economy, said OIE director-general Warawan Chitaroon.
"The global economy, geopolitical conflicts and global energy prices have pressured the export sector and manufacturers that rely on the export sector," Mrs Warawan said.
Earlier this year, the OIE predicted MPI growth of 0-1% and industry GDP growth of 2.5-3.5%.
For the first seven months this year, Thailand's MPI decreased by 4.54% year-on-year to 95.11 points.
In July, the MPI declined by 4.43% year-on-year to 91.14 points. Thailand's capacity utilisation rate (CapU) in July was 58.2%, compared with 60.8% year-on-year and 59.2% the previous month.
The continued dip in farmers' incomes, the slowing global economy, rising household debt and high interest rates all affected the MPI and purchasing power in Thailand, which had a knock-on effect on production capacity and the CapU rate, she said.
The OIE expects the drought crisis will have a greater effect on the manufacturing and export sectors. The government said it is monitoring the drought situation.
The export of industrial goods in July, excluding gold, weapons and tanks, was US$17 billion, down 1.3% year-on-year, according to the office.
The OIE said one industrial sector having a positive effect on the MPI in July was sugar production, which increased by 15.4% year-on-year because of rising demand domestically and abroad.
The automotive sector expanded by 5.34% year-on-year, in line with growth of vehicle exports by 30.1% for the period.
Demand grew for car exports in Asia, the Middle East, Africa, Europe, and Central and South America, according to the OIE.
Domestic car sales fell 8.8% for the period as household debt rose, resulting in financial institutions adopting stricter lending measures.
The petroleum refining sector increased by 4.99% year-on-year thanks to demand growth for jet fuel, cooking gas and gasohol 91 as the tourism industry rebounded after the government reopened the country, said the office.
The steel and iron sector increased by 7.11% year-on-year, the first expansion in 19 months.