Real GDP growth is projected to strengthen from 2.7% in 2024 to 3.1% in 2025. Private consumption will be a key driver, boosted by cash handouts and low inflation. Investment will recover from its weakness in the first half of 2024. Further revival of international tourism will also support demand. However, external demand is expected to be weaker for some goods categories. As the temporary cash handout scheme is withdrawn, growth is set to ease slightly in 2026.

Fiscal consolidation is needed to reduce the public debt burden while also strengthening support for vulnerable groups. The monetary policy stance should remain neutral in the near term, conditional on the projected output growth and a slow rebound in inflation. Labour market imbalances from ongoing structural shifts in the economy can be addressed with training, education and reforms to incentivise business competitiveness.

Output growth weakened somewhat during the first half of 2024, including household consumption and investment. The former in part reflects high levels of household debt and weak demand in the automotive and services sectors. Consumer confidence has been declining since March and this is echoed in business sentiment. In addition, structural downsizing in some export-oriented manufacturing sectors continues. Unemployment has increased somewhat in the first two quarters of 2024 but remains low. Meanwhile, a substantial fiscal boost via government cash transfers to households is underway. This contributed to an upside surprise in third-quarter GDP growth of 4.9% at an annualised rate. Headline inflation, at 0.6% in the third quarter of 2024, has risen from recent lows but remains below the target band of 1-3%.

Exchange rate appreciation against the dollar between June and September, predominantly due to external developments, helped contain price inflation. However, recent weeks have seen a depreciation. Weak global demand for automobiles continues to damp exports, although electronics exports have seen a recovery.

The Bank of Thailand lowered its policy rate to 2.25% in October 2024, after having kept it at 2.5% since September 2023. This rate reduction represents the continuation of a broadly neutral stance. There may be scope for further data-driven rate decreases, especially after the fiscal stimulus terminates and provided that investment, consumption and export outcomes deteriorate, and inflation remains low. Monetary policy has built up significant credibility over the years, based on a stable policy framework and a prudent and independent conduct of monetary policy. Maintaining this stable framework will be key to build on past progress.

The public debt burden has stabilised in recent months but remains elevated. Outstanding government debt amounted to 63.3% of GDP as of end September, around 20 percentage points above pre-pandemic levels. The fiscal deficit is set to widen on account of the government’s cash handout scheme. Disbursements of a first tranche of THB 10,000 transfers per household, approximately USD 300, began in October 2024. Two further tranches are planned with a final goal of reaching 45 million people, around 60% of Thailand’s population. Aiming for such a broad coverage limits the effectiveness of the transfers in reducing poverty and inequality.

Output growth in 2024 is expected to be 2.7%. The boost to household consumption from cash handouts along with stronger investment will drive growth of 3.1% in 2025. With the temporary effect on consumption fading, growth is expected to decline to 2.8% in 2026. These developments will be echoed in the labour market. Investment is expected to recover following declines in the first half of 2024. Inflation will increase gradually during 2025, with upside risks from the fiscal stimulus. Output growth faces downside risks from structural headwinds in the manufacturing sector.

Unlocking stronger economic growth will require strengthening competition through regulatory reforms across product markets, including in services sectors. Reducing entry barriers and strengthening the competition authority will be important elements of that, in addition to further improvements in public integrity. Reaching emission reduction targets will require a stronger role for carbon pricing, complemented by more stringent environmental regulations. Continued expansion in services alongside the downsizing in some manufacturing sectors requires significant labour-market adjustment. This can be helped by further improvements in education and training to reduce skill mismatch. Over the medium term, Thailand will face significant spending pressures from mounting social demands, population ageing and the green transition, which call for raising public spending-efficiency and achieving a structural increase in tax revenues. Improving the coverage, co-ordination and targeting of social benefits, including basic pensions, and raising benefit levels, would allow further reductions in inequality and poverty, creating better opportunities for all.