ECONOMIC CHALLENGES FOR THE NEW REGIME

The Thai economy appears to be showing signs of life amid optimism about the new government and its economic team, but it also faces new challenges.

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The outcome will depend on how these emerging challenges are managed.

InnovestX views the Thai economy as entering a more severe slowdown in the fourth quarter that may extend into the first half of 2026. Over the next four quarters, growth may expand by less than 1%, resulting in full-year GDP growth of only 1.8% this year and 1.4% next year.

In this fragile environment, the Bhumjaithai government led by Anutin Charnvirakul faces two major risks that require urgent management.

■Risk 1: Continued baht strength challenges the export sector: This year the baht has appreciated greatly, touching 31.70 to the US dollar. The currency weakened slightly this week to 32.24, but that is still a 6.4% gain for the year.

This appreciation stems from tighter liquidity conditions in Thailand compared with trading partners and competitors. Broad money supply, known as M2, expanded in July by only 3.6% year-on-year in Thailand, the lowest among developing countries, compared with 8.8% in China, 12.2% in India and 6% in Vietnam. As a result the baht's nominal effective exchange rate has strengthened by as much as 30% from the base year of 2012.

The trade surplus has also been a factor, partly due to gold exports to Cambodia growing more than 30%, accounting for one-third of total gold exports and averaging roughly $3 billion per quarter.

Meanwhile, signals from the Federal Reserve indicate a readiness to cut interest rates twice more this year and once more next year, causing the dollar index to weaken by 10.9% this year.