Structural problems are a key concern undermining Thailand's future growth potential, Bank of Thailand governor Sethaput Suthiwartnarueput has warned in a harrowing forecast of the country's economic future.
Mr Sethaput, scheduled to complete his term on Sept 30 this year, outlined Thailand's economic outlook in four phases, describing it as a V-shaped trajectory influenced by US tariffs on Thai exports.
The first phase is marked by heightened uncertainty, followed by a decline and bottoming out, then a recovery, with the fourth phase referred to as the aftershock period. This final stage is when the structural problems must be addressed, Mr Sethaput said.
The structural problems include slow economic growth, limitations in manufacturing and tourism, competition from imported goods, heavy reliance on exports, debt issues, and declining quality of assets.
"It will take longer to reach the recovery phase, resulting in a wider gap between the downturn and the upturn sides of the V-shape than in a typical recovery," he said.
Mr Sethaput said the gap will likely be prolonged because the trade negotiations between the US and other countries will take time, particularly with China.
Markets expect the US economy to hit bottom around the fourth quarter of 2025, while the Thai nadir is anticipated in early 2026, he said.
In light of this outlook, Thailand must strengthen its infrastructure and resolve underlying structural problems to prepare for recovery. Without these efforts, the country's potential growth could fall below 3%.
There is an opportunity to enhance Thailand's long-term growth prospects if decisive action is taken, said Mr Sethaput.
The US accounts for roughly 15% of global trade. If the rest of the world enhances trade cooperation, it would bring substantial benefits, including for Thailand, he said.
Structural Challenges
The trade war poses significant challenges for Thai small and medium-sized enterprises (SMEs), especially given the structural issues in the Thai economy. In particular, the US-China trade conflict is expected to result in a surge of imports into Thailand, impacting local SMEs more widely and severely than during the pandemic period.
"We are particularly concerned about the SME sector, which is highly vulnerable during this shock, especially given Thailand's long-standing structural problems. In the past, Thailand has not adapted as quickly as it should have. Without structural adjustments, the country's growth potential could be further weakened after the shock," said Mr Sethaput.
In the manufacturing sector, both multinational and local firms play a key role. International manufacturers may relocate production bases to better manage manufacturing costs. As such, improving conditions for foreign direct investment (FDI) such as incentives, ease of doing business, and regulatory reform will be essential to attract and retain FDI, he said.
Under the V-shaped recovery scenario, the governor estimates Thailand's manufacturing and supply chains will require at least one year to rebound after the shock.
The service sector, particularly tourism, must also adapt its operations, shifting its focus towards quality and value-added services. As global competition for tourism intensifies, Thailand should not rely solely on tourist arrivals, Mr Sethaput said.
No Need for Stimulus
Despite current economic challenges, Mr Sethaput said Thailand does not need a large-scale stimulus to lift GDP. Instead, policy efforts should aim to mitigate risks and stabilise the economy.
"My stance on the digital wallet handout remains unchanged. I appreciate the government listening to opinions on this matter," he said.
Mr Sethaput also expressed opposition to the proposed casino project, warning it could have adverse effects and contribute to the expansion of the grey economy, harming Thailand's long-term economic health.
Regarding Moody's recent downgrade of Thailand's credit outlook from stable to negative, he said the rating agency is paying increased attention to the country's governance.