Bank of Thailand warns of uncertain second-half outlook
The Bank of Thailand warns that US tariffs, factory closures and weaker labour absorption could weigh on the economy in the second half of 2026.
- Thailand's second-half economic outlook is highly uncertain due to pressure from US tariffs, forthcoming rules on excess production capacity, and structural weaknesses in the industrial and labor sectors.
- While the third quarter is expected to improve with government stimulus, the central bank has not confirmed the economy has bottomed out, citing continued high volatility and dependence on tourism for the fourth quarter.
- Key concerns are shifting from inflation to supply-side problems, including weak industrial productivity and a challenging labor market where factory closures are outpacing openings and new jobs require higher skills.
- External factors like the impact of US tariffs and high volatility in the baht currency, driven by events outside Thailand, are also contributing to the economic uncertainty.
Thailand’s economic outlook remains highly uncertain in the second half of 2026, with pressure from US tariff measures, forthcoming rules on excess production capacity and structural weaknesses in the industrial and labour sectors, according to the Bank of Thailand.
Chayawadee Chai-Anant, assistant governor of the Bank of Thailand’s Corporate Relations Group, said on Tuesday that both positive and negative factors would have to be considered, despite the central bank having previously raised its economic growth forecast.
She said the economy was expected to perform better in the third quarter than in the second, supported by government stimulus measures being implemented from June to September 2026.
Growth in the fourth quarter, however, would remain dependent on the tourism sector, which is expected to recover with the arrival of the high season.
Responding to questions over whether the Thai economy had already passed its lowest point, Chayawadee stressed that the central bank had not identified the second quarter as the bottom of the cycle.
“We have not confirmed that the second quarter was the lowest point,” she said. “We have only said that the third quarter will be better than the second. We have not said that the economy has passed its lowest point because volatility remains high.”
The Bank of Thailand is reviewing all of its economic assumptions to reflect current conditions and is expected to announce an updated economic outlook and GDP growth forecast on Wednesday, August 26.
Impact of US Section 301 tariff remains limited
On concerns over US tariffs imposed under Section 301, Chayawadee said the immediate impact on Thailand was expected to remain limited.
The measure relates to the failure to enforce restrictions on imports of goods made using forced labour.
Thailand is currently subject to an additional tariff of 12.5%, compared with 10% for some other countries. The difference is relatively small, while the rate is also lower than the 19% initially anticipated.
As a result, the measure is not expected to have a severe impact at this stage, and Thai businesses should remain sufficiently competitive to cope with the additional tariff.
However, the business sector must closely monitor US criteria relating to excess production capacity, with further details expected to be announced during August.
The key question will be how much additional tariff Thailand may face under those criteria compared with competing exporting countries.
Exports have continued to expand strongly, particularly in electronics. However, the growth in exports has also been accompanied by higher imports, meaning that the net contribution to GDP growth may be limited.
Focus shifts from inflation to supply-side problems
The Bank of Thailand expects average inflation for the full year to be slightly below its previous forecast.
Some analysts have therefore begun shifting their attention away from inflation towards supply-side problems, including weak productivity in the industrial sector.
Labour-market conditions also require close monitoring, particularly as factory closures have begun to outnumber new openings.
New factories, especially those in the electronics industry, are increasingly relying on machinery and technology. This means they tend to employ fewer workers and require a greater proportion of highly skilled employees.
Workers will therefore need to develop new skills to respond to changing industrial demand.
The central bank is also monitoring whether the agricultural sector can continue absorbing workers laid off by industrial businesses, as it has done during previous periods of economic weakness.
Chayawadee said agriculture was likely to have a more limited capacity to absorb displaced industrial workers than in the past.
Central bank closely monitors volatile baht
The baht has also experienced high volatility, driven largely by factors outside Thailand.
The Bank of Thailand will continue monitoring the currency closely to limit disruption to businesses and prevent movements from becoming excessively rapid.
“Baht volatility has genuinely increased, and much of it is being driven by external factors,” Chayawadee said.
“We will ensure that it does not move too quickly. Our main focus will be on volatility so that people and businesses have time to adjust.”
