Bangkok: The KKP (Bank of Thailand) has indicated that the newly implemented 19% tax rate offers short-term benefits but warns that the expiration of free trade agreements presents a long-term challenge requiring structural adjustments. Current projections suggest that GDP growth for the year will remain near the previously estimated 1.6%. The Monetary Policy Committee (MPC) is anticipated to reduce interest rates to 1% in the first quarter of 2026 if ongoing tensions at the Thai-Cambodian border hinder investor confidence.
According to Thai News Agency, Dr. Pipat Luengnaruemitchai, Chief Economist of Kiatnakin Phatra Financial Group (KKP), has assessed a potential economic deceleration in the latter half of 2025, posing a persistent risk of downturn. This outlook persists despite an unexpectedly strong economic performance in the first half of the year, driven largely by expedited exports to the United States ahead of impending import tariffs. Concurrently, Thailand's tourism sector may continue to experience a downturn due to safety concerns for tourists.
The short-term positive impact of the 19% tax rate is likely to be overshadowed by an anticipated slowdown in exports post-August when the tax becomes effective. This scenario may compel the government to implement measures aimed at mitigating the impact and seizing the opportunity to restructure Thailand's economic and investment strategies, possibly by enhancing direct investment. The food, healthcare, and tourism sectors are projected to maintain strong performance.
Preliminary data points to a threefold impact of US trade tariffs: a 19% tariff on generally untaxed goods, increased tariffs on low-value imports reliant on Chinese raw materials, and transshipment goods potentially facing tariffs as high as 40%. Many Thai exports to the US involve low value-added manufacturing, heightening the risk of these goods being subject to significant tariffs.
Thailand's GDP growth is expected to align closely with the original 1.6% forecast, with US tariffs potentially affecting the year's GDP by 0.3-0.9%. Should the US remove items from its exemption list, the impact could escalate to 0.7-1.1%. Exports are anticipated to decline substantially after the accelerated shipments preceding the August measures. Nonetheless, if the National Economic and Social Development Board (NESDB) reports a 3% GDP growth for Q2 2019, KKP may revise its GDP forecast upwards, currently projecting a 2.2% growth for the same quarter.
With the anticipated MPC interest rate cuts fully passing through to commercial banks, loan interest rates are expected to decrease, thereby reducing business costs and benefiting the home and auto sectors by facilitating easier consumer purchasing decisions. The MPC is projected to lower the policy interest rate to 1% by early 2025.
The situation at the Thai-Cambodian border is expected to have a transient impact, but prolonged tensions could affect investor confidence.