Thailand factory closures outpace openings as SME strain deepens

The Office of the National Economic and Social Development Council (NESDC) reported on the industrial situation in the first quarter of 2026, pointing to worrying economic warning signs as the number of factory closures rose above the number of new factory openings for the first time in two-and-a-half years, or 10 quarters.

This reflected an uneven economic recovery in which medium-sized and large businesses were still able to expand, while SMEs had entered a downturn, with more closures, particularly in vulnerable sectors facing economic risks from the situation in the Middle East.

The NESDC said first-quarter 2026 data from the Department of Industrial Works showed 156 factory closures, up 11.4%, while new factory openings totalled only 139, down sharply by 63.9% from the previous year.

It was the first time in 10 quarters, or since late 2023, that closures had exceeded new openings, a key indicator of declining confidence in new investment amid risks on all sides.

Investment value was supported by established medium-sized and large investors expanding 106 existing operations, up 82.8%, with investment worth THB152.5 billion, compared with THB8.5 billion a year earlier.

In particular, investment in machinery increased 1,300-fold.

However, 99.3% of new employment was concentrated in large and medium-sized factories, reflecting that economic opportunities had not been broadly distributed to the grassroots level.

This directly affected small businesses, which did not benefit from new openings or expansions in the same way as medium-sized and large firms.

By industry, plastic products, food, machinery, electrical appliances and electronics factories continued to open and expand.

Investment in machinery expansion in the latest quarter reached THB52 billion, compared with THB40 million in the same period a year earlier, in line with employment of 7,886 people, up from only 50 in the previous quarter.

Food, plastic products, and electrical appliance and electronics factories also increased hiring, in line with higher non-agricultural employment, particularly in manufacturing, and with continued export growth in the latest quarter.

SME factory closures draw scrutiny

The most worrying group was small factories, or SMEs, employing no more than 50 people.

Investment and labour numbers among factories that closed increased from the same period a year earlier, when closures had also risen.

In particular, metal products and plant-based products saw more closures, mainly because of weaker competitiveness, lower demand for goods and the additional pressure of cheap imported goods flooding the market.

Persistently high raw material and energy costs also left small operators unable to bear the burden.

Middle East war adds pressure on SMEs

The industrial sector is also facing geopolitical vulnerability from the prolonged Middle East conflict, which has affected transport through the Strait of Hormuz.

This has had a direct impact on key export goods, particularly vehicles and parts, which rely on the Middle Eastern market for as much as 35.4%.

They were followed by air-conditioners, processed food, and computers and components, for which dependence on the Middle Eastern market accounted for 7.8%, 4.6%, 3.7% and 3.5%, respectively, of total exports.

On policy recommendations, the NESDC proposed that the government accelerate measures to protect domestic operators, such as anti-dumping measures to help SMEs, and speed up reskilling to develop workers from industries that have closed so they can move into new industries with potential, or S-Curve industries, to support the overall economy.

Economist urges economic monitoring

Assoc Prof Thanavath Phonvichai, president of the University of the Thai Chamber of Commerce, said the economy’s 2.8% growth in the first quarter did not mean that every sector had improved.

Measures were therefore needed to prevent SME closures from reducing the manufacturing sector too far, including improving skills and knowledge and supporting financial channels to help Thai businesses continue.

The fact that factory closures had exceeded new openings over the past 10 quarters, especially among small factories, was an issue that needed close monitoring.

However, some closures could reflect operators shifting to new businesses, or normal legal and financial management in the business world.

Concerns over difficult access to SME loans

Thanavath said the worrying point reflected in the rise in closures was that SME lending had been negative for 13 consecutive quarters, showing that SMEs faced high risks in operating their businesses amid intense competition.

The main causes affecting SME competitiveness included:

1. Competition from foreign capital groups has advanced to the point that Thai SMEs find it difficult to withstand them.
2. Structural changes in the economy, particularly in the automotive industry, which is transitioning to EV technology, as well as the arrival of AI systems, are making it difficult for businesses that fail to adapt to survive.
3. Specific factors in some sectors, such as weak growth in agriculture and a construction sector whose recovery has yet to stand out.

“Factory closures exceeding new factory openings are only a Warning Sign, not yet a Danger Sign, because the overall economy remains strong in some dimensions. First-quarter exports expanded by as much as 15% and the unemployment rate was only 1%, indicating that some factory closures have not yet affected overall employment.”

Calls to accelerate upskilling and reskilling for operators

Thanavath said related agencies needed to accelerate action in three areas: promoting potential and skills, or Upskilling/Reskilling, by strengthening personnel from basic education through to university level, so they are ready for business in the modern world.

This included reducing costs and business obstacles, whether registration fees or employment costs, so SMEs do not face excessively high costs.

Financial measures must also improve access to credit, while non-performing loans (NPLs) must be managed systematically to prevent the number of SMEs falling to a level that would upset the balance of the economy.

Concern over firms pausing rather than shutting down

Saengchai Teerakulvanich, chairman for strategy of the Thai SME Federation, told Bangkokbiznews that the concern was not only the statistics on permanent closures, but also businesses that had not closed but had temporarily suspended operations.

This reflected the structural weakness of SMEs, which were facing costs beyond their ability to manage.

Thailand also lacks an in-depth database system linking agencies for use in assessment, analysis and policy design.

This means many assistance measures are poorly targeted and do not effectively accommodate the impacts that occur.

Saengchai said many SMEs chose to suspend operations temporarily rather than close permanently because they could not manage supply-chain costs efficiently and could not pass the cost burden on to consumers.

The situation was now reflecting a decline in competitiveness, especially among small operators that are highly vulnerable and are still not fully captured in state databases.

Manufacturing-sector SMEs totalled 516,234, employing 2.849 million people.

Of these, 426,339 were micro SMEs.

By category, there were 23,954 manufacturing community enterprises, 379,487 manufacturing sole proprietors and 112,793 manufacturing juristic persons, according to data from the Office of Small and Medium Enterprises Promotion (OSMEP).

Closure data from the Department of Industrial Works may not reflect the whole reality, because the factory database mainly covers small, medium-sized and large factories, while many micro SMEs may be outside the system, leaving a data gap that could hide a higher actual number of closures than reported.

Negative productivity and weaker manufacturing

Another danger sign was the continued decline in SMEs’ Total Factor Productivity (TFP).

OSMEP data showed TFP stood at 2.36 in 2022, before falling to 1.97 in 2023.

In 2024, it turned negative for the first time at -0.27, while 2025 was likely to remain negative because of the sluggish economy, weak purchasing power and rising business operating costs.

“Some SMEs have begun changing status from producers to traders because they can no longer bear production costs. They also have difficulty accessing capital. Investment in technology and innovation is limited by funding and returns, while many workers and entrepreneurs lack new technology skills to increase productivity,” Saengchai said.