Thailand's Economy Slows in May Due to Tourism and Manufacturing Decline

Thailand's economy experienced a slowdown in May, primarily due to a decline in tourism and manufacturing output, according to the Bank of Thailand (BOT). The central bank highlighted that these factors countered a notable increase in exports, which had been a positive contributor to the economy.

The BOT reported that tourism revenue and the number of international visitors, especially those from long-haul destinations, decreased during the month. In the manufacturing sector, output declined due to prior inventory restocking and a temporary shutdown of a refinery for maintenance.

Despite these challenges, exports remained a strong point for the economy, with significant growth attributed to increased global demand for electronics and a rush to ship products ahead of impending tariff deadlines.

In May, Thailand recorded a current account deficit of $0.3 billion. Private investment decreased by 0.6% from the previous month, while private consumption rose by 0.2%, driven by a steady increase in the use of durable goods.

In response to the economic slowdown, the BOT decided to keep its key interest rate unchanged, citing the need to preserve policy space to support the economy amid global trade uncertainties and renewed domestic political turmoil.

The central bank acknowledged that the economy had shown stronger growth than expected in the first half of the year, partly due to the rush to fulfill export orders before US tariffs took effect. However, uncertainties still loomed over the outlook, prompting the bank to indicate its readiness to reduce rates further if necessary.

The Bank of Thailand’s monetary policy committee voted 6 to 1 to maintain the one-day repurchase rate at 1.75%, the lowest in two years. The BOT stated that its rate cuts in February and April were providing some support to the economy.

A statement from the BOT indicated that the Thai economy is expected to slow down due to rising risks to merchandise exports, stemming from US trade policies, geopolitical issues, and domestic factors.

The stronger-than-expected start to the year led the BOT to raise its central-case growth forecast for 2025 to 2.3%, close to last year’s 2.5% and more optimistic than some market analysts' predictions.

Assistant Governor Sakkapop Panyanukul mentioned at a press conference that the committee is prepared to take action if the economy does not grow as quickly as anticipated.

According to a senior ASEAN economist, the BOT’s move is supportive, suggesting that there is room for further assistance in the coming months. The economist also noted that a further 25 basis point cut in the second half is possible, given the risks to growth from domestic politics and US tariffs.

Capital Economics expected 50 possible basis points of rate cuts by the end of the year.

The BOT also revised its forecast for tourist arrivals, another potential driver of domestic growth, to 35 million this year.

Thailand faces a 36% US export tariff, a major growth driver, if it fails to secure a reduction before a moratorium expires in July. Additionally, most countries will have to pay a 10% tariff while the moratorium takes effect.