The government is being urged to address zero-dollar exports and investments from China, as they are expected to intensify due to the US tariff measures.
The US reciprocal tariffs, both universal and those targeting Thailand, are likely to exacerbate the global decoupling between the US and China. With rising geopolitical risks, this will increase competition in global trade and investment, said Amonthep Chawla, chief economist at CIMB Thai Bank (CIMBT) Economic Centre.
The US tariffs will also affect the movement of production bases, with Southeast Asia and Thailand likely to be key destinations for foreign direct investment (FDI) worldwide, he said.
Thailand will likely serve as a manufacturing base for both domestic sales and exports for overseas investors, said Mr Amonthep.
"Despite the positive outlook for FDI flows to Thailand, the country faces challenges related to zero-dollar investments and exports, particularly from Chinese investors," he said.
"This issue has been ongoing in Thailand and is expected to worsen given the heightened geopolitical risks."
Zero-dollar exports refers to trade activities that result in little or no economic benefit for the exporting country.
Mr Amonthep said while Thailand posted record FDI inflows last year, the country's Purchasing Managers' Index (PMI) showed only marginal growth and did not contribute significantly to employment.
Thai export growth was in double digits, but again did not provide significant benefits to the economy due to minimal growth in net exports, he said.
"The government must address zero-dollar investments and exports, much like how it managed the zero-dollar tours in the past, to effectively stimulate Thai economic growth," said Mr Amonthep.
Although US President Donald Trump paused the 36% tariff on Thai exports for 90 days, the 10% universal tariff remains in place, leading to uncertainty, he said.
As a result, CIMBT downgraded its Thai GDP growth forecast for 2025, lowering it from 2.7% to 1.8%, while forecasting Thai export growth of 1.4% this year.
However, Thailand's economy is unlikely to enter a recession, said Mr Amonthep.
"It is still possible for Thailand to enter a technical recession if uncertainty continues to escalate. In this scenario, Thai GDP growth is projected to fall to 1.4% this year, assuming consecutive slowdowns in the third and fourth quarters on a quarter-on-quarter basis," he said.
"Yet the likelihood of a Thai technical recession during the second half of the year is only 20%."
Mr Amonthep said the Bank of Thailand is expected to reduce its policy rate three more times, lowering it from 2% to 1.25% by the end of the year.
At the central bank's Monetary Policy Committee meeting on April 30, it is expected to continue lowering the rate, following a cut in February, according to CIMBT.
The research centre expects the baht to depreciate against the dollar in the second quarter this year, pressured by capital outflows amid rising uncertainties.
The repatriation of dividends by foreign investors, along with a slowdown in tourism revenue, will also contribute to the weakening of the baht.
Given the heightened uncertainties, particularly stemming from the US reciprocal tariff measures, the baht is expected to experience greater volatility against the dollar in the second half of the year.
CIMBT expects the baht to reach 35.20 per dollar by the end of this year.
