BOT, JFC warn structural woes, baht strength and downgrade risk

Thailand is facing increasingly severe structural problems and a steady erosion of competitiveness, Bank of Thailand (BOT) officials and the Joint Standing Committee on Commerce, Industry and Banking (JFC) warned, as risks mount for growth to remain below potential in 2026.

BOT: structural weaknesses and overreliance on external demand

Pranee Sutthasri, senior director of the BOT’s macroeconomics department, said Thailand faces both structural problems and declining competitiveness, with the economy highly dependent on external demand through goods exports and tourism, leaving the country sensitive to external shocks.

Pranee said exports expanded by 12% in 2025, but export quality has weakened and exports no longer function as the main growth engine as effectively as in the past. Export growth also includes a high share of imported inputs used to produce intermediate goods, while domestic manufacturing has barely grown.

Competition from imports has intensified. Pranee cited a rise in the share of imports from China from around 15% in 2012 to 31% of total import value. This trend highlights that export growth has come with high import content, limiting spillovers to domestic production.

Tourism: Thailand below pre-Covid levels while peers recover

Pranee compared Thailand with key Asian competitors such as Japan, South Korea and Vietnam, where tourist numbers have risen steadily and are above pre-Covid levels. Thailand stands out as the only one where tourist numbers fell year-on-year.

Thailand recorded about 33 million tourists in 2025, down 7%, and still below the pre-Covid period, reflecting weaker tourism competitiveness.

Looking ahead, Thailand is likely to grow below potential. The BOT expects 2026 GDP growth of about 1.5%, with private consumption pressured by slow income growth. Goods exports are also expected to face headwinds from import tariffs and a high base in the previous year.

A likely two-to-three-month delay to the FY2027 budget process is also expected to reduce support later in the year, due to the dissolution of parliament and a new election.

BOT: three global uncertainties

Piti Disyatat, BOT deputy governor for financial stability, said the US–Venezuela episode reflects broader global uncertainty, which is driving volatility now and into the future across three areas:

1. Trade uncertainty: US trade policy over the past year has driven broad changes in global production and trade structures.
2. Military uncertainty: rising tensions, wars and the use of force are increasing international uncertainty, with the US playing a key role in shifting military rules and norms.
3. Financial uncertainty: global financial turbulence could be triggered by the US presidential election, given the central role of the US in the world financial system.

Piti added that in geopolitics and in Asia, political factors are increasingly outweighing economic considerations, and US–China tensions directly affect the region and require close monitoring.

BOT: credit risk and shrinking lending

Surach Tanboon, senior director of the BOT’s monetary policy department, said the policy rate has been cut to 1.25% to support recovery, but multiple risks remain.

Surach  flagged credit risk and shrinking lending as key concerns, as financial institutions remain cautious, particularly for SMEs where NPLs exceed 10%. Repayments have exceeded new lending in several categories, as households and firms avoid taking on additional debt in an uncertain environment.

Externally, Surach warned about stretched valuations in US equity markets, which could trigger sharp repricing and tighten global financial conditions. Sovereign debt risks in major economies such as Italy, France and Japan could also push bond yields higher and create global financial stress.

Trade policy and geopolitics — including tariffs and the US–China trade war — as well as cases like Venezuela being used in great-power rivalry, add further uncertainty for exports and investment.

JFC: risk of sub-2% growth, baht strength adds pressure

The JFC, in its first meeting of the year, warned Thailand faces multi-sided pressures and risks expanding by below 2% in 2026 for the first time in 30 years (excluding past major crises), if structural reforms are not accelerated.

Poj Aramwattananont, chairman of the Thai Chamber of Commerce, said Thailand risks being the slowest-growing economy in the region due to structural issues, high household debt, a large informal economy, limited fiscal space, outdated regulations and weak data-linking across the state.

Additional risks include disasters, a stronger baht, cybercrime, grey-money flows and delays in the budget process.

The JFC said the baht strengthened 8.2% last year — the second-highest in the region — hurting exporters as if an automatic “tariff” had been imposed. The JFC linked baht strength to gold trading and digital-asset flows, and urged regulators to “connect the dots”, particularly for baht transactions linked to non-residents, to prevent currency distortion and stop grey capital and money laundering from damaging the real economy.

Kriengkrai Thiennukul, chairman of the Federation of Thai Industries, said the baht’s strength is out of line with weak domestic fundamentals, noting appreciation of more than 8% between January 1, 2025 and January 1, 2026. Vietnam’s currency depreciated by around 3% over the same period, creating a competitiveness gap of 10–12%.

Kriengkrai called for serious controls on gold and cryptocurrency, warning against free flow that could enable laundering. The statement also argued Thailand is being used as a transit point for abnormal money flows, while domestic FX trading accounts for about 50% of trading volume compared with a global average of around 10%.

2026 outlook and reform demands

The JFC projected 2026 GDP growth of 1.6–2.0% and warned that without deep structural reform, Thailand could remain the region’s laggard and risk being overtaken by Vietnam in economic size as Vietnam pursues faster growth and advances in technology and innovation.

Thailand still relies heavily on low value-added OEM production, while facing labour shortages and relatively high wages, alongside household and informal debt that weighs on purchasing power and investment.

The JFC said corruption is a major national cost and launched a “JFC and friends won’t tolerate — Zero Corruption” campaign, arguing outdated rules create openings for bribery. Logistics costs were cited at 15–16% of GDP, with a call to reduce the figure to 9–10%.

The JFC urged the state to act as a facilitator rather than a controller, accelerate structural reform, bring the informal economy into the system, resolve debt sustainably and link government data across dimensions. It also called for infrastructure development in water and rail, and for using major global events hosted in Thailand — including the IMF/World Bank 2026 meetings, Gastech 2026 and Tomorrowland — to help rebrand the country and integrate Thailand more deeply into global supply chains.