Thailand’s shrinking surplus raises baht stability fears

Thailand is being warned that its economic challenge is no longer only about whether growth will recover in the second half of the year, but whether the country can reform fast enough before today’s structural risks turn into a deeper crisis.

The warning comes as economists and business leaders point to a shift in Thailand’s long-standing economic strengths.

For years, the country benefited from large current account surpluses, supported by exports and tourism. That position is now weakening as energy costs remain high, imports rise, competitiveness declines and the country struggles to build new sources of income from future industries.

Dr Pipat Luengnaruemitchai, Chief Economist at KKP Research, Kiatnakin Phatra Financial Group, said Thailand was entering a major structural turning point. The current account, once a key source of stability, is now moving towards a smaller surplus and may fall into deficit in some periods.

He said the change could have direct consequences for the baht, monetary policy stability and foreign investor confidence.

If the trend continues, Thailand may need to place greater weight on financial stability when setting both monetary and fiscal policy, particularly if the country becomes more dependent on foreign savings.

Thailand previously recorded current account surpluses of around 8-10% of GDP during 2014-2018, driven largely by the boom in Chinese tourist arrivals. That helped strengthen the baht and allowed the Bank of Thailand to build foreign reserves rapidly.

Since the Covid-19 crisis, however, the surplus has continued to shrink. One major factor has been higher oil prices, particularly as conflict in the Middle East has pushed up energy costs.

Customs Department figures showed Thailand posted a trade deficit of around US$10 billion in April, of which about US$2.4 billion came from oil. KKP sees the oil factor as temporary, provided global energy prices return to normal.

The deeper concern lies in the non-oil trade balance. Over the past six months, imports have continued to rise as Thai-made products face tougher competition. Electric vehicles and several other imported goods have increasingly replaced domestic production in some industries, while some types of investment also carry high import content.

Data centres, for example, can involve imported content of as much as 80% of investment value, adding further pressure to the external balance, although the scale remains limited for now.

The services balance has also failed to return to its previous strength.

Tourism has recovered to about two-thirds or three-quarters of its pre-pandemic level, but the services account has not moved back into a strong surplus because Thailand is paying more abroad for other services, including higher transport costs and intellectual property payments.

Pipat said a small current account deficit would not immediately signal a crisis, especially as Thailand still has strong buffers.

However, he warned that if the external position keeps weakening, policymakers will have less room to act freely than in the past.

The country will need to be more cautious about policies that could undermine fundamentals, because investors will watch for signs of a “twin deficit” in both the fiscal balance and the current account.

“Given the trend of a smaller current account surplus, and possible small deficits in some periods, this is one issue that policymakers must handle carefully in the next phase, whether in monetary or fiscal policy,” he said.

KKP expects Thailand’s current account to record a deficit of about 2% of GDP in the second quarter of 2026.

Pipat said this level would not yet point to an immediate stability crisis, but it would mark an important signal that the country’s financial position is becoming more vulnerable than before.

He noted that during the 1997 Tom Yum Kung crisis, Thailand’s current account deficit reached around 7-8% of GDP. In general, a deficit above 3-5% would require greater caution.

Thailand is not yet near that level, but the direction of travel matters because a weaker current account would affect the baht and the confidence of foreign investors.

The baht, he said, is unlikely to strengthen in one direction as it did in the past. Instead, it is expected to become weaker and more volatile, making financial stability a more important priority for both the government and the central bank.

Pipat added that a weaker baht is not always negative. After a long period of strength, a weaker currency could help Thailand regain some competitiveness.

However, the benefit would depend on whether the country can rebuild its economic base and avoid policies that conflict with fundamentals.

Indonesia was cited as an example of the risks. When a country shifts from surplus to deficit while also running a fiscal deficit, investors may lose confidence if policy is not aligned with economic realities.

In Indonesia’s case, large energy subsidies, doubts over reform under new leadership and governance concerns contributed to heavy asset sales, sharp rupiah depreciation and the need for interest rate increases, which then hit the economy.

For Thailand, KKP said the policy answer is not only to preserve stability, but also to build new engines of growth. The country needs higher-value sectors that can generate foreign income beyond traditional tourism, such as wellness, healthcare and financial services. These would help offset rising digital-related payments and improve long-term competitiveness.

The same concern is reflected among business leaders, who increasingly view Thailand’s economic challenge as structural rather than cyclical.

Their concern is not simply whether the economy can recover in the second half of the year, but whether Thailand can adjust to a new global environment shaped by geopolitical conflict, energy volatility, ageing demographics, slowing labour potential and fierce competition for investment from neighbouring countries.

The risk is that Thailand may lose the advantages that once supported its economic stability. Export and tourism income may no longer be enough to offset rising costs from energy and imported technology.

If the country fails to create sufficient income from future industries, a falling surplus or prolonged deficit could affect the baht, monetary policy stability, national financing costs and foreign investor confidence.

Business leaders have urged the government to go beyond short-term stimulus and remove long-standing obstacles to investment. Their proposals include cutting overlapping regulations, tackling corruption, accelerating investment approvals, developing clean-energy infrastructure and providing clearer long-term policy direction.

These issues are becoming more urgent as countries compete to attract premium technology investment, including artificial intelligence, semiconductors, data centres and green industries.

Investors are no longer looking only at tax incentives. They are paying closer attention to policy certainty, infrastructure readiness and the overall competitiveness of each country.

On interest rates, KKP expects the Bank of Thailand to keep its policy rate unchanged until the middle of next year, provided the Middle East conflict does not escalate and Thai inflation does not peak above 5%.

However, three factors could force the central bank to raise rates. The first would be inflation rising much more sharply than expected, possibly to around 8%, pushing up costs and wages.

The second would be a situation in which major central banks around the world raise rates while Thailand does not, causing the baht to weaken too heavily. The third would be a current account deficit combined with a fiscal deficit, triggering investor concern and asset sales, which could force the central bank to raise rates to protect stability and retain capital.

KKP said the current account may not directly drive the stock market in the short term, as equity investors focus mainly on earnings growth and the economy. However, the current account remains a key measure of economic stability.

If Thailand enters a prolonged deficit or faces a twin-deficit problem, investors may start questioning the country’s fundamentals, which could damage long-term confidence.

Foreign investors are already watching three major concerns in Thailand’s capital market: the country’s growth and structural reform outlook, governance among listed companies, and uncertainty in politics and government policy.

Governance remains a significant issue after several major problems involving listed companies in recent years. If these issues are not addressed seriously, they could become another obstacle to attracting foreign investment.

Political and policy uncertainty is also still being monitored closely.

Although it may not be causing as much concern as in some earlier periods, foreign investors continue to see Thailand’s political system and policymaking process as complex and difficult to predict compared with several other countries in the region. This makes it harder for them to assess the direction of the economy and long-term investment opportunities.

The broader message is that Thailand’s current economic warning should not be treated as a normal slowdown. It is not only about GDP growth or weak purchasing power, but about whether the country can adapt before its old strengths fade further.

If the government continues to rely mainly on short-term stimulus while delaying structural reform, today’s warning could become a much larger economic problem.

For policymakers, the challenge is to act before the country’s shrinking surplus, weaker competitiveness and rising investor concerns become much harder to reverse.

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