Bank of Thailand warns of elevated economic risks, government stimulus could boost GDP growth by 0.5-0.7%
Thailand's central bank warned of elevated economic risks from Middle Eastern tensions and trade uncertainties, but said government stimulus of around 300 billion baht could boost GDP growth by an additional 0.5-0.7% this year.
Pranee Suddhasri, Senior Director of the Macroeconomic Department at the Bank of Thailand (BoT), revealed that the central bank has issued a special economic alert regarding heightened risks stemming from escalating Middle Eastern tensions, which are beginning to significantly impact production costs for Thai businesses.
"Many entrepreneurs are facing mounting pressure from rising raw material and energy prices, while their raw material inventories can only sustain operations for 1-3 months. If the situation persists, the business sector's capacity to absorb shocks could deteriorate rapidly," Suddhasri stated.
Additional concerns include uncertainty over U.S. trade policy and potential impacts from a Super El Niño phenomenon, which could affect agricultural output and prices, further fueling inflation. Businesses are expected to gradually raise prices in the second quarter of this year to reflect higher costs, though cost-pass-through will be limited by weak consumer purchasing power and fragile liquidity in the economy.
Suddhasri emphasized that Thailand's economy has not yet entered stagflation despite rising inflationary pressures, as stagflation requires sustained low growth combined with persistent high inflation, conditions not yet evident.
"The BoT forecasts inflation in 2025 may temporarily accelerate to 3-4% starting in April, averaging 2.9% for the year before moderating to 1.5% in 2026, reflecting price pressures remaining controllable. Economic growth is expected to expand only 1.5% in 2025 before accelerating to 2.0% in 2026, representing slow and vulnerable recovery to external shocks."
However, additional government stimulus measures injecting around 300 billion baht could boost growth by an additional 0.5-0.7%, becoming a critical factor in supporting the Thai economy amid widespread uncertainty.
In the first quarter of 2025, the Thai economy expanded from the previous quarter, driven by improved export demand, particularly in technology products excluding gold, and increased private consumption following accelerated vehicle deliveries following the EV 3.0 incentive program's conclusion. Private investment rose due to machinery and equipment purchases, alongside increased government spending.
On the supply side, industrial production increased following petroleum output recovery after major refinery maintenance in the previous quarter, with large chemical companies expanding capacity. The service sector improved primarily through trade activity, aligned with production and export growth.
However, the economy began facing impacts from Middle Eastern conflict by quarter-end, reflected in declining exports to the region and reduced foreign tourist arrivals, particularly from Middle Eastern and European visitors.
