Thailand has lost its last engine of growth and people are abandoning hope for a decent life.
The first half of the previous sentence is being well documented in the media after a sharp drop in the number of tourists coming to Thailand, with the situation likely to get worse when Donald Trump”s tariff policy comes into full effect in July.
However, the second half of the sentence about the economic impacts of lower tourism income has not yet been analysed. Thailand has four growth engines: (1) Investment, (2) Consumption, (3) Exports, and (4) Tourism. Many agree the first three burned out some time ago, making Thai GDP growth one of the lowest in Asean.
The only force keeping the economy from plunging into a dark abyss is the last engine — tourism — which has been booming since the end of the Covid pandemic. Tourist numbers are now close to the pre-Covid level. It was projected the number of foreign tourists would increase by 7.5% this year, reaching 38.2 million visitors.
Without a booming tourism sector, the Thai economy would have had negative GDP growth both in 2023 and 2024. Unfortunately, things changed unexpectedly since February 2025.
The number of incoming tourists, which expanded 26.7% in 2024, shrunk 6.9%, 8.8% and 7.6% respectively from February to April. It was the first contraction in five years.
Disappointing tourism performance is the key factor that led to a 1.0% cut in GDP growth projections for 2025. The projected 2.8% GDP growth has now been lowered to 1.8% by the government”s planning agency, the National Economic and Social Development Council (NESDC). Both the IMF and the World Bank agreed and both lowered 2025 GDP growth for Thailand to 1.8% and 1.6% respectively. A local research house is even more pessimistic, projecting a 1.4% GDP growth for this year.
There are a few reports trying to explain the causes of such a drastic decline in the tourism industry, such as behavioural changes among Chinese tourists and a loss of tourism competitiveness. I do not see much advantage in repeating such information here. This article will focus on the impact of lowered GDP growth which, as far as I know, has not been analysed elsewhere. Lower GDP growth, from 2.8% to 1.8%, means the economy will lose 186 billion baht in value. What will be the impact of losing 186 billion baht on the economy in such a debt-ridden time?
Lower GDP growth will create three impacts on the economy: (1) lower tax revenue for the government, (2) less money available to consumers for consumption, and (3) higher levels of bad debt for financial institutions. The 2025 fiscal year budget was decided on under the assumption of 3.3% GDP growth, resulting in a 3.6% rise in revenue collection. I do not have the full model to calculate the revenue impact of lower GDP growth of 1.5%. However, it is safe to say the minimum revenue loss would be 50 billion baht.
This could be why the government appears to be short of cash and has been conservative in spending. No wonder the 10,000 baht cash handout programme was (indefinitely) postponed and replaced with other projects which do not require immediate use of cash. These projects can be paid for intermittently. The argument that, as long as expenditure is provided in the budget bill, the government has no fear of a cash shortage and can always borrow is not true — in practice.
At this point in time, cash is hard to find and the money market is not conducive for large amounts of borrowing. Therefore, instead of issuing bonds, the government has been using 300 billion baht from its fiscal balance account (a government savings account) deposited at the Bank of Thailand. The fiscal balance, as of March 2025, was 227 billion baht compared to a 526 billion baht starting balance at the beginning of the fiscal year.
I have heard the 2025 fiscal year budget (October 2025 to September 2026) was drafted under the old 2.8% GDP growth assumption. If the budget is to be revised with the new GDP growth figure of 1.8% applied, how much would have to be cut to accommodate the lower income projection? This is an important issue as people expect the government to stimulate the economy in times of difficulty. Sadly, the Thai government is now as poor as a church mouse. Government supporters who do not agree with me, please explain why the government has to resort to withdrawing money from a savings account while the budget bill allows the government to borrow by issuing bonds.
What I fear is not the lack of ability to stimulate the economy, but the lack of ability to assist the economy in the event of unexpected natural disasters such as earthquakes and floods. That is what the government savings account is really meant to be used for. Another hope to abandon is the reliance on domestic consumption. In 2024, private consumption growth contributed 2.5% to total GDP growth of 2.5%. In other words, without strong consumption, Thai economic growth will be flat.
However, the consumption growth factor dropped from 2.5% in 2024 to 1.5% in Q1/2025 — reflecting weak tourist spending. The consumption push factor is expected to be much weaker in subsequent quarters and could plunge the economy into a technical recession. That is why there are complaints of a surprise drop in consumer spending. The answer is simple — there”s no money to spend.
One last hope is most important. Thais hope that a financial crisis can be avoided. Nobody wants to re-live the painful experience of the 1997 financial crisis. A shrinking GDP just could be the last straw. The 1% loss in GDP growth would not only mean that there will be 186 billion baht less cash to spend on consumption, but it also means that there will be 186 billion baht less cash available to pay off debt.
In 2024, foreign tourists brought in 1.4 trillion baht of capital inflow — a cash injection into the money market. If they bring in 10% less cash this year, equivalent to 140 billion baht, I can guarantee there will be a string of defaults in private corporate bonds.
Corporates, big and small, will find it impossible to get cash in Thailand to refinance their matured bonds. If the government has difficulties finding cash to finance its deficit, why wouldn”t the corporates struggle to get cash too? And a cash shortage crisis could happen in the 3rd quarter when over 200 billion baht of corporate bonds need to be refinanced. The Bank of Thailand can only stand by and watch the collapse of the 4.6 trillion baht Thai corporate bond sector as, by law, the bank can not interfere with the private debt market.
Meanwhile, the government is too disorganized and too broke to be able to manage the dire situation. As one famous Thai entrepreneur said: “This is the most difficult time in 40 years.” I could not agree more.
