The Bank of Thailand braces for Trump’s second term, citing risks from US-China trade tensions, job losses, and a volatile baht. With projected 2025 growth at 2.9%, the central bank still warns of potential economic shocks as household debt recedes under a K-shaped recovery.
Senior executives and officials at the Bank of Thailand on Monday urged caution as Thailand’s economy heads into 2025. The central bank was particularly concerned about the potential policies and impact of the second Trump administration in the second half of 2025. In the meantime, it highlighted lower loan growth and, finally, some progress in dealing with the country’s chronic household debt. At the same time, a damaging economic relationship with China is coming into play. The bank projected 2.9% growth in 2025 and suggested it was keeping its monetary policy neutral in case intervention is required later.
At a forum event on Monday, the Bank of Thailand gave an overview of Thailand’s economic situation. The event was addressed by senior central bank figures who underlined the potential impact of a second Trump US presidency, which commences on January 20th.
The news comes alongside reports from Beijing that Chinese President Xi Jinping intends to adopt a robust and aggressive posture toward the United States. In short, China will retaliate and hit back on US trade sanctions and tariffs. Indeed, this policy has already begun.
Bank of Thailand warns of risks from US-China trade tensions and global economic uncertainties
Thailand is facing a more aggressive trade policy from China. An example in recent days is the blocking of $400 million in Thai sugar syrup exports as they arrived in China by sea.
At the same time, the central bank leaders are highlighting some progress in Thailand’s goal of reducing household debt, in particular, the reduction in credit for new car purchases during 2024. For instance, in the second quarter of 2024, car hire purchase agreements were down by 7.7%.
At the same time, the bank is concerned about the impact on Thailand’s automotive sector, particularly regarding the potential loss of jobs. In short, the fundamental changes occurring within the industry may not impact GDP as much as they will affect employment. The bank reckons 1 million relatively well-paid jobs are at risk.
The forum heard from Sakkapop Panyanukul, Assistant Governor of the bank’s Monetary Policy Group. He revealed that he expects the Thai economy to have grown by 4% in the final quarter. This is despite a significant downturn in GDP performance in November.
The central banker highlighted higher government expenditure and exports driving growth. The economy grew 3% in the third quarter. Thailand is expected to record 2.7% growth in 2024.
Thailand’s automotive sector risks job losses despite moderate economic growth forecast for 2024
Nonetheless, the bank described the present economic recovery as K-shaped. It predicts inflation in 2025 will be approximately 1.1%. The bank advocated protecting the continued economic recovery while delivering against the threat of household debt.
Assistant Governor Sakkapop, however, highlighted that the bank was at the same time concerned about the risks posed by lower credit being made available from banks. Certainly, this also posed a risk to financial stability.
In the meantime, the bank would reserve its monetary policy stance. Presently, it views the 2.25% borrowing rate as neutral. However, it is concerned about the impacts of President Trump’s trade policies, including a blanket trade rate and efforts to keep investment by US firms at home.
Therefore, the bank views the second half of 2025 as a potential risk. In response to this, the bank should keep its powder dry in case robust action is required. It is furthermore mindful of the danger of an external shock to the system, particularly by any potential rise in commodities critical to the economy.
Bank of Thailand monitors 2025 risks, including Trump trade policies and threats to financial stability
“If the overall economy and inflation rate change significantly more than expected, monetary policy is ready to be adjusted. Under the K-shaped economic recovery, the automotive and auto parts industries are worse off, but some parts are still growing. The service sector can still be supported,” explained Mr. Sakkapop. “However, the BOT will do more to create a scenario for interest rate cuts, but we may have to wait for Donald Trump, who will start working in February because the policy is not clear at this time. The policy enforcement is not clear, or the response is not clear. If we start to see clarity, the scenario can be implemented. However, the big picture is still the target inflation framework and the effectiveness of monetary policy that we have to pursue anyway.”
Certainly, the bank predicts that the baht will be volatile, driven by dynamics in the United States and also a changing economic relationship between Thailand and China.
Mr. Surach Tanboon, the Senior Director of the Monetary Policy Department, emphasized the impact of lower loan growth. Certainly, foreign tourism operators are less in need of support. At the same time, difficulties in the manufacturing sector have caused banks to be more risk-sensitive.
The crisis in the automotive sector was addressed by Mr. Piti Disyatat, Deputy Governor of Financial Stability. At this time, there were internal changes within Thailand. The development of a Chinese-dominated EV sector at the expense of traditional Japanese firms is one example.
The sharp reduction in car sales is another. The first nine months saw a 25% reduction in sales. For instance, in October, pickup truck sales in Thailand were down by 41.6% compared to last year.
Thai automotive sector faces challenges from global EV transition and a sharp decline in domestic car sales
Meanwhile, changes in the industry worldwide are occurring. The bank is concerned that factory closures in Thailand in this sector may intensify in 2025. Significantly, this could impact up to 1 million workers.
Meanwhile, Pranee Suthasri, the Senior Director of the Macroeconomic Department, saw the Trump factor as key to 2025. She predicted Thailand will see 2.9% GDP growth next year.
In particular, the relationship between Thailand and China will alter. Undoubtedly, the growth in manufacturing firms relocating to ASEAN, including Thailand, will continue.
However, Thailand also faces the dangerous prospect of more cutthroat competition from Chinese exporters blocked from the US market.
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Economy sees a sharp setback with lower private spending, investment and foreign tourism income
“The risk to the Thai economy if Trump has a policy of trade barriers is significant. Undoubtedly, it will cause more Chinese products to flood into Thailand. Thailand imports more Chinese products than any other country. As for product consumption, Thailand and China are connected. Although domestic demand has expanded, it is seen that many sectors are slowing down. In short, they are in negative territory because of imports from China. This is a risk if trade barriers become more severe. It could be a risk to the Thai economy,” said Ms. Pranee.
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