Thailand’s Growth Slows as Debt Rises and Digital Transformation Struggles to Scale

Thailand’s economy, as examined in the Thailand Economic Monitor (TEM) of July 2025, developed by the World Bank in collaboration with the National Economic and Social Development Council (NESDC) and the Bank of Thailand (BOT), is facing a challenging environment shaped by global trade tensions, weakening consumption, and declining investor confidence. The Thai economy expanded by 3.1 percent in the first quarter of 2025, supported by front-loaded exports and delayed public investment disbursements. However, domestic economic activity showed signs of fatigue, as private consumption slowed to 2.6 percent and private investment contracted for the fourth consecutive quarter. Manufacturing remained sluggish, and the tourism sector faltered, with Chinese arrivals plunging due to lingering safety concerns and shifting travel trends. Despite a positive headline figure, Thailand’s post-pandemic recovery continues to lag behind regional peers.

Inflation dropped into negative territory at -0.2 percent in April, marking the lowest rate among emerging markets. This deflationary trend was underpinned by declining global energy prices and the Thai government’s continuing use of price subsidies. The Bank of Thailand responded by cutting its policy interest rate to 1.75 percent in April, citing weak domestic demand, subdued inflationary pressures, and the need to support financial conditions. Meanwhile, household debt, although slightly reduced, remains among the highest in the region at 87.9 percent of GDP. The BOT has launched several structural reforms, including tighter lending standards, to prevent further accumulation of risky, unsecured loans.

Trade Imbalance and Fiscal Strains Signal Caution Ahead

Thailand’s external position appears superficially strong, with the current account posting a sizable surplus of 7.5 percent of GDP in Q1 2025. This was largely driven by export front-loading in anticipation of global tariff hikes, particularly in electronics and machinery destined for the U.S., China, and the EU. However, these gains are vulnerable, and the outlook for exports remains fragile. The Thai baht experienced depreciation against major currencies despite strong reserves, reflecting continued capital outflows and investor nervousness. Foreign equity outflows exceeded those of regional peers, and the country remains exposed to fluctuations in trade policy and global sentiment.

On the fiscal front, the government adopted an expansionary stance to cushion the economy. The fiscal deficit widened to 6.3 percent of GDP in the first half of FY2025. The first two phases of the universal cash transfer program provided critical support for household consumption and debt repayment, but at a fiscal cost of THB 174.5 billion. With limited fiscal room, the government has now pivoted toward more targeted investment, allocating THB 157 billion to infrastructure, productivity-enhancing programs, and tourism promotion. Public debt rose to 64.4 percent of GDP and is expected to continue climbing toward the statutory ceiling of 70 percent over the medium term. The report highlights the urgent need for tax system reforms, including VAT expansion and improved income tax collection, to stabilize public finances.

Forecasting a Slower Path: Headwinds in 2025 and Beyond

Thailand’s growth outlook has dimmed significantly. GDP is forecast to slow to 1.8 percent in 2025 and further to 1.7 percent in 2026. Private consumption is expected to remain subdued amid high household debt and weak earnings. Private investment will likely decline due to ongoing global uncertainty and domestic policy unpredictability. Export growth, which stood at 5.8 percent in 2024, is projected to drop to just 2.6 percent in 2025, while tourism, long a mainstay of the Thai economy, is expected to recover only gradually, reaching pre-pandemic visitor numbers by mid-2026. The sharp drop in Chinese tourists is of particular concern. With per capita tourist spending also down, the broader economic impact will be less pronounced than in previous recovery cycles.

Inflation is expected to stay low, just 0.3 percent in 2025, well below the BOT’s target range. This provides room for further monetary easing but also reflects ongoing demand-side weakness. Without robust productivity gains and more competitive domestic industries, Thailand risks entering a period of prolonged low growth.

Digital Transformation: A Missed Opportunity or a Growth Catalyst?

Amid this cautious economic environment, digital transformation emerges as a key lever for change. Thailand has made significant progress in mobile broadband access, digital identity infrastructure (ThaID), and digital payments (PromptPay). However, the digital economy remains underdeveloped, contributing just 3.4 percent to GDP, far below regional benchmarks. Fixed broadband coverage, essential for advanced digital services, lags, especially in rural areas. Venture capital investment in digital startups is limited, just US$0.8 billion from 2020 to 2022, highlighting weak innovation ecosystems.

Only 6 percent of internet users in Thailand accessed generative AI tools in 2024, the lowest rate in ASEAN. The digital skills gap is significant: only 5.1 percent of adults have intermediate digital literacy, and just 1 percent can code. This impedes digital adoption among MSMEs, which represent over 99 percent of all Thai businesses. To address these challenges, the report calls for stronger regulatory frameworks for data sharing, broader digital upskilling initiatives, and increased investment in data infrastructure, including cloud computing and high-performance computing systems.

Sectoral Innovations Show Promise but Need Scaling Up

Despite structural constraints, Thailand has demonstrated promising use cases for digital technology in several sectors. E-commerce adoption among consumers is high, with nearly 90 percent of adults shopping online. Yet, MSMEs have been slow to digitize due to infrastructure limitations and a lack of capabilities. In health, the pandemic accelerated digital innovations such as contact tracing and digital vaccination records, but data fragmentation and weak governance frameworks hinder scalability. In finance, the PromptPay system has revolutionized digital payments and is being expanded through ASEAN cross-border initiatives. Still, future challenges loom in regulating tokenized assets, crypto platforms, and maintaining interoperability across systems.

Thailand’s digital future hinges on proactive policy, substantial infrastructure investment, and workforce development. A digitally inclusive economy can drive productivity, expand markets, and generate better-paying jobs, key ingredients for Thailand’s goal of becoming a high-income nation.