Three economic storms squeeze Thai SMEs and consumers

Thailand’s economy is facing three overlapping economic storms: an energy-price shock and current-account deficit, a system-wide rise in production costs, and weakening domestic purchasing power, Vice Minister for Finance Santitarn Sathirathai said.

The pressures come as economic growth loses momentum. The Office of the National Economic and Social Development Council (NESDC) reported that gross domestic product expanded by 1.9% year on year in the second quarter, slowing from 2.8% in the first.

Santitarn said the figures reflected the strain on an economy undergoing a period of transition, with households and businesses confronting higher costs while domestic demand weakened.

First storm driven by energy prices and external deficit

The first economic storm stems from persistently high energy prices, which are affecting household living costs as well as Thailand’s broader economic stability.

Import values accelerated in the second quarter, contributing to a current-account deficit of THB575.4 billion. Part of the increase was linked to energy stockpiling intended to strengthen the country’s energy security at a time of elevated global prices.

Santitarn warned that the impact would extend beyond fuel bills, as higher energy prices fed into transport charges, production expenses and the prices of other consumer goods.

Second storm puts SMEs under a double squeeze

The second storm is a broad rise in production costs, leaving small and medium-sized enterprises facing what Santitarn described as a “double squeeze”.

Consumer price inflation shifted from a 0.5% contraction in the first quarter to growth of 2.7% in the second, while the Producer Price Index rose by 8.3%.

The figures indicated that producers were absorbing a substantial increase in costs because weak purchasing power prevented them from passing the full burden on to customers.

The pressure was particularly severe for SMEs, which were confronting weaker revenue at the same time as expenses rose across their operations.

“Many SMEs have limited cash reserves, less bargaining power over prices and greater difficulty accessing credit than large companies. So when revenues slow while costs rise, liquidity is usually the first problem to emerge. Even fundamentally sound businesses may have to cut staff, reduce investment or even close simply because they cannot keep enough cash circulating,” Santitarn said.

Third storm reflects weakening household demand

The third economic storm is weakening domestic purchasing power and slower private consumption.

Private consumption growth fell from 3.3% in the first quarter to 1.9% in the second, while the Consumer Confidence Index declined to 50.3.

Santitarn said the figures showed that Thai consumers were becoming increasingly cautious and reducing the proportion of their income devoted to spending.

Weaker demand was also making it more difficult for businesses to raise prices, intensifying the pressure on companies already dealing with higher energy, transport and production costs.

Ministry outlines three-part economic response

To address the three economic storms while capitalising on a new investment cycle, the Finance Ministry has set out a policy framework based on three priorities: “support today, transform now and invest for tomorrow”.

Under the “support today” priority, the government will use short-term measures to ease living costs and assist affected businesses, particularly viable SMEs facing temporary liquidity difficulties.

The objective is to prevent short-term financial pressure from causing lasting economic damage through business closures, job losses or reductions in investment.

Economic-support measures, including the Thai Chuay Thai Plus programme, remain in operation to cushion the impact of the energy crisis on households and businesses.

The government will also focus on improving access to financing, credit guarantees and debt restructuring so that assistance can be directed more precisely towards SMEs that remain commercially viable.

Santitarn said the large proportion of workers in informal employment added to the challenge of delivering targeted support.

Energy transition central to reducing vulnerability

The second priority, “transform now”, is intended to reduce Thailand’s long-term exposure to fluctuations in global energy prices.

The government plans to use a further THB200 billion from the second tranche of borrowing under the emergency decree for measures aimed at sustainably reducing electricity bills and living costs for households and businesses.

Thailand must also accelerate both the production and use of green energy, Santitarn said, while enabling domestic companies and suppliers to participate directly in supply chains created by the energy transition.

The aim is to generate employment, strengthen domestic industrial capabilities and reduce the repeated economic impact of future energy-price shocks.

Private investment offers longer-term opportunity

Despite the slowdown in overall economic growth, private investment expanded by 13.4% in the second quarter, its strongest growth in more than 13 years.

Private investment in machinery and equipment, including computers, software and industrial machinery, rose by 16.6%, indicating continued activity linked to the digital economy and industrial upgrading.

Santitarn said the figures suggested that Thailand was continuing to benefit from supply-chain relocation and the expansion of industries associated with artificial intelligence, green technology and the digital economy.

Under the “invest for tomorrow” priority, Thailand should position itself as a “Trusted Connector” — a reliable base capable of linking investors from different countries amid heightened geopolitical tensions.

The government and the Investment and Industrial Transformation working group under the Joint Public and Private Sector Consultative Committee will work together to pursue that objective.

Santitarn said investment policy should no longer be assessed solely by the value of applications for investment promotion submitted to the Board of Investment.

Greater emphasis should instead be placed on the local value added that new projects generate in Thailand’s real economy over the following three to five years.

This would include developing advanced skills among Thai engineers, promoting research and development collaboration and bringing Thai SMEs into the emerging value chains of future industries.

The objective is to ensure that incoming investment strengthens domestic capabilities and creates opportunities for Thai businesses rather than merely producing larger headline investment figures.