Bangkok: SCB EIC projects that Thailand's economic growth is under threat due to ongoing US tariff negotiations. The economic outlook for 2025 anticipates a GDP growth of 1.5%, which could potentially drop to 1.2% in 2026, contingent on the outcomes of these crucial trade discussions.

According to Thai News Agency, SCB EIC warns of a significant slowdown in the Thai economy, driven by the potential repercussions of US tariffs. A pivotal deadline looms on August 1 for negotiations, which will determine whether Thailand succeeds in reducing retaliatory tariffs imposed by the US. The current economic forecast hinges on the resolution of these negotiations, with the Monetary Policy Committee (MPC) likely to cut interest rates twice more within the year to combat economic contraction.

The economic analysis highlights the risk of Thailand's exports losing competitiveness in the US market due to higher reciprocal tariffs compared to those faced by regional competitors such as ASEAN countries, Japan, and South Korea. The electronics and electrical appliance sectors, in particular, are vulnerable to losing market share. The imposition of a potential 36% retaliatory tariff by the US on Thai goods, should negotiations falter, poses a severe threat to the economy. In contrast, competitors like Vietnam may face only a 20% tariff, exacerbating Thailand's economic challenges.

The possible failure of negotiations could see Thailand's GDP growth plummet to 1.1% this year and as low as 0.4% in 2026. This scenario underscores the need for strategic trade proposals from Thailand, especially in the agricultural sector, which remains sensitive due to higher domestic production costs and concerns over food security.

Further complicating the economic landscape are additional pressures from factors such as ongoing political tensions with Cambodia, which could impact economic stability, and uncertainties in the global tourism market affected by the US tariffs. The tourism sector, crucial for Thailand's economy, faces turbulence despite a slight recovery in Chinese tourist numbers.

Globally, economic activity indicators showed some resilience, with China experiencing a better-than-expected growth rate. However, the postponement of US retaliatory tariffs to August 1 has only temporarily alleviated pressures, with ongoing trade negotiations playing a critical role in shaping the economic outlook for 2026 and beyond.

While the global monetary policy remains supportive, the looming threat of a trade war introduces uncertainties. This environment could trigger more frequent adjustments in monetary policies, as evidenced by the cautious stance of the Federal Reserve and the Bank of Japan amid tariff-related risks.

SCB EIC anticipates potential further interest rate cuts by Thailand's MPC beyond the expected two, should the trade negotiations with the US collapse or other risk factors intensify. The economic conditions present a precarious path forward for Thailand, demanding vigilant monitoring and adaptive policy measures to mitigate adverse impacts from international trade dynamics.