Supavud warns Thailand risks slow growth and current account deficit, flags US tariffs and AI bubble
MacroDigital Finance
Dr. Supavud Saicheua, Chairman of the National Economic and Social Development Council, warned that Thailand's economy grew only 1.9% in the second quarter, with exports up 12.5% but imports surging 24%, putting Thailand on course for a current account deficit this year. That could make it harder for the Bank of Thailand to cut interest rates and add pressure for the baht to weaken. The central bank has also cut its GDP forecast for next year to 1.8% from 2.1%. Thailand remains exposed to imported energy costs: if Brent crude averages 80 dollars per barrel, energy import costs would equal 10% of GDP, and if prices stay above 88 dollars per barrel, GDP could fall by as much as 3%. Structurally, Thailand's population is set to shrink to 64 million by 2040, with the working-age labour force losing 4.7 million people. The World Bank estimates this will drag down GDP and per capita income by 0.86% per year. Although Thai commercial banks have a BIS ratio as high as 20.7% and an NPL coverage ratio as high as 173%, SME lending has contracted for 14 consecutive quarters because of high non-performing loans. Thailand needs to shift toward food processing and services, as well as technology supply chains such as hard disk drives, PCB, OSAT and photonics. This September, Thailand will hold trade talks with the United States aimed at an Agreement on Reciprocal Trade, and will negotiate a free trade agreement with the European Union, but still faces the risk of additional US tariffs over forced labour and overcapacity issues. The US economy itself has interest costs as high as 3.3% of GDP and is on track to issue government bonds worth nearly 100% of GDP amid declining foreign buying, which will push bond yields higher around the world. Markets are also starting to worry about financial fragility from overinvestment and the technology sector's reliance on funding itself. If AI investment exceeds 3 to 4 trillion dollars while most companies have not yet restructured to generate worthwhile revenue, that could lead to the risk of a broader economic crisis.
