The Thai economy is slowing down as the decline in tourism and manufacturing offsets the rise in exports.✅
The Thai economy contracted in May compared to the previous month, affected by a slowdown in tourism and a decline in manufacturing output, according to the Bank of Thailand. The central bank clarified that these factors offset the notable increase in exports.✅
The Board of the Bank of Thailand noted a decline in tourism revenues and the number of international visitors, especially long-haul travelers, during the month. In the manufacturing sector, production decreased due to previous inventory restocking and a temporary shutdown of a refinery for maintenance.✅
In contrast, exports provided a strong boost to the economy, recording strong growth. The Bank of Thailand attributed this increase in exports to rising global demand for electronics and the influx of shipments before the deadlines for the implementation of tariffs.✅
The Cabinet is taking measures to support the country's declining economy.✅
In May, the Bank of Thailand announced that Thailand's current account deficit reached 0.3 billion USD. In that month, private investment fell by 0.6% from the previous month, although private consumption rose by 0.2%. This trend was supported by a steady increase in durable goods consumption.✅
In response, the Thai central bank kept the key interest rate unchanged as expected. It indicated the need to maintain monetary policy margins to support the economy, which is facing headwinds from global trade uncertainty and renewed domestic political turmoil.✅
The central bank also stated that growth was significantly stronger than expected in the first half of the year, partly attributed to the rush to meet export demands before U.S. tariffs took effect. However, uncertainty still looms over the forecasts. To address this situation, the bank confirmed its readiness to cut interest rates further if necessary.
Meanwhile, the Monetary Policy Committee of the Bank of Thailand voted by a majority of six to one to keep the one-day repurchase rate at 1.75%, its lowest level in two years. The Bank of Thailand reported that interest rate cuts in February and April had provided some support to the economy.✅
A statement mentioned that the Thai economy is expected to slow down due to increasing risks to goods exports. These risks stem from U.S. trade policies, geopolitical issues, and domestic factors.✅
The stronger-than-expected start to the year prompted the Bank of Thailand to raise its growth forecast for 2025 to 2.3%, close to 2.5% last year and more optimistic than some market analysts.✅
Thailand aims to secure the reduction before the suspension period ends in July.✅
In a press conference, Deputy Governor Sakapob Paniyanuwong indicated that the committee is prepared to take action if the economy does not grow as expected.✅
However, the move by the Bank of Thailand is supportive, meaning there is room for further assistance in the coming months, according to Lavanya Venkateswaran, a senior economist at OCBC Bank in the ASEAN region.✅
Venkateswaran added that their call is for an additional rate cut of 25 basis points in the second half of the year amid various risks threatening growth due to concerns about domestic policy and U.S. tariffs.✅
Meanwhile, Capital Economics predicted a 50 basis point rate cut by the end of the year.1✅
The Thai baht showed no immediate reaction against the U.S. dollar after the decision to keep interest rates unchanged, which was expected by 21 of 33 economists surveyed.✅
The Bank of Thailand also lowered its forecast for the number of incoming tourists, another potential driver of domestic growth, to 35 million this year.✅
Thailand faces a 36% U.S. tariff on its exports, a major growth driver, unless it can secure a reduction before the freeze period ends in July. Additionally, most countries will have to pay a 10% tariff throughout the freeze period.✅
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