Thailand’s economy has shown unexpected resilience in the face of mounting challenges, with second-quarter growth surpassing forecasts despite looming US tariffs, a faltering tourism sector, and domestic political unrest. The South-east Asian nation, heavily reliant on exports to the United States, recorded a 2.8% year-on-year increase in gross domestic product (GDP) for the three months ending in June, according to the National Economic and Social Development Council. This figure, announced on August 18, outpaced the median estimate of 2.7% from a Bloomberg News survey, signaling a temporary boost driven by export frontloading ahead of new trade barriers.
Yet, beneath this headline growth lies a more troubling picture. With a 19% tariff now imposed on shipments to the US—Thailand’s largest export market—the economy faces a potentially prolonged period of weakness. Coupled with declining tourist arrivals and internal instability, including the suspension of the prime minister and recent deadly border clashes with Cambodia, the outlook for South-east Asia’s second-largest economy remains uncertain. As the Bank of Thailand (BOT) slashes interest rates to historic lows, questions linger about whether these measures can sustain growth in the face of global and regional headwinds.
Exports Propel Growth, But at a Cost
The second-quarter expansion was largely fueled by a surge in exports, as Thai businesses rushed to ship goods to the US before the implementation of higher tariffs under President Donald Trump’s trade policies. This frontloading strategy provided a short-term lift, with the council noting that the export of goods “continued to grow favorably” while private investment also returned to expansion. However, this tactic is unlikely to be sustainable as the full impact of the 19% tariff begins to bite, potentially disrupting supply chains and squeezing profit margins for exporters. 
The Thai baht, a key indicator of market sentiment, remained relatively stable at 32.44 to the US dollar following the GDP announcement. But analysts warn that currency pressures could emerge if export revenues decline sharply in the coming months. The reliance on the US market has long been a double-edged sword for Thailand, offering lucrative opportunities but leaving the economy vulnerable to policy shifts in Washington. With small businesses already identified as particularly at risk by the BOT, the tariff’s ripple effects could deepen economic inequality and strain domestic consumption, which has already shown signs of deceleration.
Central Bank Responds to Mounting Pressures
In a bid to shore up the fragile economy, the Bank of Thailand cut its benchmark interest rate for the fourth time since October, lowering the one-day repurchase rate by 25 basis points to 1.5% on August 13. This marks the lowest rate in over two years, reflecting the central bank’s growing concern over falling prices, the impact of US trade policies, and a notable drop in foreign tourist arrivals. The monetary committee’s unanimous decision underscores the urgency of supporting growth amid structural challenges and weakening competitiveness.
The BOT’s statement painted a cautious picture for the remainder of the year, projecting a slowdown in the second half due to the direct and indirect effects of US tariffs. The bank also highlighted intensified regional competition as a factor in declining short-haul tourist numbers, a critical revenue source for Thailand. With private consumption and small businesses expected to bear the brunt of these challenges, the central bank emphasized that monetary policy would remain “accommodative” to bolster economic activity.
While rate cuts may provide temporary relief by reducing borrowing costs, they also signal deeper concerns about deflationary pressures and sluggish demand. Thailand’s economy has struggled to regain momentum since the pandemic, and the latest measures suggest that policymakers are bracing for a prolonged period of uncertainty. The BOT’s forecast of continued growth close to earlier assessments offers some reassurance, but the external shocks posed by trade barriers could undermine even these modest projections.
Tourism and Domestic Challenges Weigh Heavy
Beyond the export sector, Thailand’s economic woes are compounded by a faltering tourism industry, which has historically been a cornerstone of GDP growth. The council reported a deceleration in the export of services—a category that includes tourism—reflecting a decline in foreign visitors. Regional competition, particularly from neighboring countries offering similar cultural and natural attractions at lower costs, has eroded Thailand’s edge in this sector. The BOT specifically noted a drop in short-haul arrivals, which often include budget-conscious travelers from nearby Asian nations, as a key concern.
Domestic issues further complicate the picture. Private consumption expenditure and government spending have both slowed, while public investment has also lost steam. Political instability adds another layer of difficulty, with the suspension of the prime minister creating uncertainty for investors and policymakers alike. Additionally, recent border clashes with Cambodia, which resulted in casualties, have heightened tensions in the region, potentially deterring tourists and disrupting cross-border trade. These incidents, though localized, underscore the fragility of Thailand’s recovery as it navigates both internal and external pressures.
Regional Context and Global Implications
Thailand’s experience is not unique in the South-east Asian region, where many economies are grappling with the fallout of US trade policies. Like its neighbors, Thailand benefited from the frontloading of exports in the first half of the year, a trend seen across Asian markets as businesses sought to mitigate tariff impacts. However, the sustainability of this approach remains in doubt, particularly for a country as export-dependent as Thailand. The US market accounts for a significant share of Thai goods, ranging from electronics to agricultural products, and a prolonged trade dispute could force a painful restructuring of supply chains.
Globally, Thailand’s challenges highlight the broader risks of protectionist policies in an interconnected world. The imposition of tariffs not only disrupts exporting nations but also risks escalating into wider trade conflicts that could dampen global growth. For Thailand, the immediate priority is to diversify its export markets and strengthen domestic demand, though both strategies require time and investment. In the meantime, the BOT’s accommodative stance may help cushion the blow, but it cannot fully shield the economy from external shocks.
Looking Ahead: A Fragile Balancing Act
As Thailand moves into the second half of the year, the interplay between export performance, tourism recovery, and domestic stability will be critical to its economic trajectory. The BOT’s rate cuts and cautious outlook suggest that policymakers are preparing for tougher times ahead, with US tariffs likely to exert sustained pressure on growth. Small businesses, already vulnerable to structural challenges, may face the greatest risk, potentially widening economic disparities in a country where inequality remains a persistent issue.
Efforts to revitalize tourism could provide some relief, but this will require addressing regional competition and restoring traveler confidence amid political and security concerns. Similarly, resolving domestic political tensions and border disputes will be essential to creating a stable environment for investment and growth. For now, Thailand’s economy has defied expectations with its second-quarter performance, but the road ahead is fraught with uncertainty.
As the nation balances these competing challenges, the effectiveness of monetary policy and government interventions will be put to the test. With global trade dynamics in flux and regional rivalries intensifying, Thailand’s ability to adapt will determine whether it can weather this storm or succumb to the mounting pressures on its economy.
