Economy Moody's Shifts Thailand's Economic Outlook to Negative Amid Rising Risks

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Moody's Ratings has maintained Thailand’s Baa1 issuer and local currency ratings, but the economic outlook has shifted from stable to negative. This change highlights growing concerns over Thailand's economic and fiscal resilience, with Moody's expressing worry about slowing economic momentum and increased vulnerability to external shocks, exacerbated by shifting global trade dynamics.

 

Thailand's export-dependent economy is particularly sensitive to rising protectionism, especially following recent US tariffs and potential further trade restrictions. OECD data show that Thailand's value-added exports to the US accounted for approximately 3% of GDP in 2020, making the country particularly susceptible to these changes. Additionally, Thailand's role in regional supply chains means it faces indirect risks, particularly if US-China trade tensions lead to an influx of Chinese goods in Thai markets, hindering domestic production.

 

Investment sentiment has also been dampened, with historical data suggesting trade tensions discourage foreign direct investment (FDI). During the 2018–2019 US-China trade conflict, Thailand saw notable dips in FDI and capital investment. Further reduction in supply chain diversification, particularly under the “China+1” framework, could strain long-term capital flows.

 

Compounded by a recent earthquake in Myanmar, which has raised regional safety concerns, these issues could further impact Thailand’s critical tourism sector. Moody’s now projects Thailand’s real GDP growth to slow to around 2% in 2025, a downward revision from a previous forecast of 2.9%. This outlook reflects existing structural weaknesses, including a shrinking labour force and skill gaps. Reduced growth prospects threaten fiscal consolidation efforts, especially given Thailand's rising public debt, projected to reach approximately 56% of GDP in 2024.

 

 

 

Despite these challenges, Thailand’s Baa1 rating remains supported by sound macroeconomic management, robust domestic capital markets, and strong external buffers. Inflation is low, and interest payments are well contained. The country’s foreign exchange reserves amount to $215 billion, safeguarding against potential external financial shocks.

 

Moody’s cautions about long-term risks, citing Thailand’s ageing population and environmental vulnerabilities, such as flooding and agricultural stresses. Yet, the nation's strong governance and track record of macroeconomic stability lend significant resilience.

 

As Thailand navigates these challenges, Moody’s indicates a rating upgrade is unlikely in the short term given the negative outlook. Improved growth and fiscal metrics could stabilise the outlook, while persistent weak growth or political disruptions could lead to a downgrade.

 

  Adapted by ASEAN Now from The Nation 2025-04-30

 

 

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about time the sky may now fall in Thailand