The competitiveness of Thailand’s economy is waning, the country’s central bank warned yesterday, as it battles against headwinds including U.S. tariffs, high levels of household debt, and an unusually strong currency.
According to a report by Reuters, the Bank of Thailand said in a report that the strong baht, which gained more than 10 percent against the U.S. dollar last year, would weigh on export shipments in 2026. The 19 percent U.S. tariff that came into effect in August is also expected to impact exports over the coming year.
Adding to the uncertainty is the ongoing border dispute with Cambodia, which flared into nearly three weeks of heavy fighting last month, and the ongoing political uncertainty within Thailand, which has seen three prime ministers in as many years and goes to the polls for a highly unpredictable snap general election on February 8.
“This year there is a lot of uncertainty,” Bank of Thailand deputy governor Piti Disyatat told the press, Reuters reported.
“Policy room is low, but that doesn’t mean there is none,” he added. “If we think it is necessary then it will be used.”
In its report, the Bank of Thailand said that GDP growth in the second half of last year is expected to have reached 1.3 percent year-on-year, with exports up 9.1 percent over the period. However, the Thai Trade Policy and Strategy Office (TPSO) on Tuesday forecast Thailand’s exports to remain stagnant in 2026, growing by between -3.1 percent and 1.1 percent, as the full impact of the U.S. tariffs is felt.
The Bank of Thailand’s admission is a sign that there is no instant fix for the troubles facing the Thai economy, which has struggled to recover from the recession of the COVID-19 pandemic. In its most recent regional economic update, released in October, the World Bank projected that Thailand’s economy would grow by just 2 percent this year, and 1.6 percent in 2026. This compares with a growth of 4.1 percent in 2018. Last year, the Bank of Thailand forecast growth of 2.2 percent for 2025.
The country’s economic troubles are encapsulated by the state of its tourism industry, which saw a worrying contraction in 2025 after a modest post-pandemic recovery. For every month of the year bar January, Thailand saw declines in the corresponding months in 2024. In September, the government was forced to reduce its forecast for foreign tourist arrivals this year from 37 million to 33 million; this has since been further reduced to 32 million, which is a 9.8 percent decline from 2024.
The contrast between Thailand’s economic performance and that of its key regional competitor, Vietnam, is dramatic. This week, Hanoi announced annual GDP growth of 8.02 percent in 2025, up from 7.09 percent in 2024, despite facing a U.S. tariff of 20 percent. The Vietnamese government is targeting annual growth rates of 10 percent between now and 2030.
This divergence is also seen in the tourism sector. Vietnam is the fastest-growing tourist destination in Southeast Asia, and was on track to receive a record high of 21 million foreign tourists in 2025, according to its Ministry of Culture, Sports, and Tourism. This put it on track to smash the previous record of 18 million set in 2019, the last full year before the COVID-19 pandemic. Thailand, meanwhile, has struggled to return to the 40 million foreign visitors it welcomed in 2019.
What explains the divergences between the two nations, which have adopted a similar model of export-led industrialization? As my colleague James Guild noted in a column in September, there are a number of possible factors. One is simply that Vietnam remains a cheaper place to do business than Thailand, a more developed country where wages and electricity costs are generally higher – in part because of its past economic successes. Other factors include Vietnam’s growing export concentration in “higher-value products such as phones, integrated circuits, and computers,” in contrast with Thailand’s broader spread of export industries, and Vietnam’s tighter integration with the Chinese and South Korean economies.
Whatever the exact causes, the contrasting trajectories of Thailand and Vietnam could well mark a changing of the economic guard in Southeast Asia. Nikkei Asia reported this week that Vietnam’s nominal GDP is on track to overtake Thailand “as soon as this year.”
“If growth accelerates as planned,” it reported, “nominal GDP for Vietnam could reach the mid-$500 billion level in 2026 or 2027, surpassing Thailand and potentially becoming the third-largest economy in Southeast Asia after Indonesia and Singapore.”
Image credit: Shutterstock ID: 2284206119. This article was originally published in The Diplomat.
Sebastian Strangio
Sebastian Strangio is Southeast Asia editor at The Diplomat.