THAILAND'S WEAK ECONOMY AND THE TARIFF CHALLENGE

Thailand’s economy continues to face challenges because of long-standing structural factors, including an ageing society leading to labour shortages and market limitations.

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Business competitiveness has been stunted by overly rigid economic policies resulting in insufficient investment, and difficult access to credit. This vulnerability is reflected in the strengthening baht index, a credit contraction and high commercial bank interest rates.

The challenges are now even greater in light of US President Donald Trump's tariff crusade. In addition to a minimum 10% import tax on goods from around the world, he announced “reciprocal tariffs” on dozens of countries.

Asian countries that have large trade surpluses with the US have been hit hardest, with Thailand facing tariffs of 36%, which will severely impact the export sector.

Although the latter have been put on hold until early July (except for tariffs on China), the 10% base rate still applies. News that negotiations with Washington have been delayed until Thailand addresses certain “issues” raised by the US is a negative signal.

Recent developments suggest potential de-escalation of the trade tensions, however. China is now considering suspending its 125% tariff on certain US imports. This mirrors similar moves by the US, which recently excluded electronics from its 145% tariff on Chinese imports.

These reciprocal pullbacks reflect how deeply intertwined the world's two largest economies are, with key industries grinding to a halt after the trade war escalated.

For Thailand, we believe the impacts will become clear in the second half of the year, particularly in the third and fourth quarters when the economy may grow by only 0.4% and 0.2% respectively.

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