Moody’s revises Thailand’s outlook to negative amid heightened economic and fiscal risks

The outlook change reflects Moody’s growing concern over Thailand’s slowing economic momentum, mounting fiscal pressure, and vulnerability to external shocks, particularly from shifting global trade dynamics. The recent imposition of U.S. tariffs and the uncertainty surrounding further trade restrictions after a 90-day pause add to Thailand’s economic headwinds, especially given the country's deep integration into global and regional value chains.

Thailand’s export-driven economy is expected to bear the brunt of rising protectionism, with OECD data showing that value-added exports to the US accounted for around 3% of GDP in 2020. In addition to direct trade impacts, Thailand faces indirect exposure via its role in regional supply chains, particularly if US-China tensions divert surplus Chinese goods into Thai markets, dampening domestic manufacturing output.

The negative sentiment is likely to extend to investment. Historical patterns suggest that external trade tensions weigh heavily on foreign direct investment (FDI). For instance, during the 2018–2019 US-China trade conflict, Thailand saw a notable drop in both FDI and gross fixed capital investment. A slowdown in supply chain diversification, particularly under the “China+1” strategy, could further reduce long-term capital inflows.

Compounding these challenges is a recent earthquake in Myanmar, which has heightened regional safety concerns and could dampen tourism, a key economic pillar already affected by an earlier incident in 2025 that reduced tourist arrivals.

Moody’s now expects Thailand’s real GDP growth to slow to around 2% in 2025, revised down from its previous forecast of 2.9%. This reflects both cyclical and structural weaknesses, including a shrinking labour force and skills gaps. Lower growth also threatens to derail fiscal consolidation, which had already been delayed under the government’s December 2024 medium-term fiscal framework (MTFF), even before the latest global trade concerns emerged.

Thailand’s public debt has risen significantly since the pandemic, from 34% of GDP in fiscal year 2019 to approximately 56% in 2024. While this level remains manageable relative to peers, continued economic softness could further erode fiscal buffers. The risks may be mitigated if the government successfully implements revenue-enhancing measures and structural reforms to boost long-term growth.

Despite these concerns, the Baa1 rating remains supported by Thailand’s sound macroeconomic management, resilient domestic capital markets, and robust external buffers. Inflation remains low and well-anchored, underscoring the effectiveness of monetary policy. Interest payments are also contained, about 6% of government revenue in FY2024, below the 10% median for similarly rated peers.

Thailand’s foreign exchange reserves stood at $215 billion as of March 2025, equivalent to roughly seven months of imports, offering a sizable cushion against external shocks. Moody’s estimates the country’s External Vulnerability Indicator at around 50% for 2025, indicating a healthy reserve position relative to short-term and maturing long-term external debt.

Thailand’s local and foreign currency ceilings remain unchanged at Aa3 and A1, respectively. The four-notch difference between the sovereign rating and the local currency ceiling reflects both strong external fundamentals and institutional capacity, weighed against moderate political and economic risks. The one-notch gap between the foreign and local currency ceilings accounts for historical capital control practices, though policy credibility and low external debt temper those risks.

Moody’s also notes that environmental and social factors pose long-term challenges. Thailand’s ageing population is reducing labour force participation and straining growth potential. Environmental risks — including flooding, water stress, and agricultural vulnerability — remain moderate but relevant. Despite these concerns, strong governance and a history of macroeconomic stability underpin the country’s resilience.

Looking ahead, Moody’s indicates that a rating upgrade is unlikely in the near term due to the negative outlook. However, the outlook could stabilise if Thailand demonstrates stronger-than-expected growth and fiscal performance. Conversely, a downgrade could occur if weak growth persists or if political developments significantly hinder policy implementation and institutional effectiveness.