Thailand Confronts Negative Inflation as Economy Slows and Household Debt Piles Up

BANGKOK – Thailand is dealing with falling prices in its economy, a rare and worrying situation known as negative inflation or deflation. The National Statistical Office reports that for four months in a row, the consumer price index (CPI) has stayed negative.

In May 2025, it dropped by 0.57% compared to the same month last year. This decline, mostly caused by lower prices for energy and farm goods, points to deeper problems beneath the surface.

High household debt, a slow rebound in tourism, and obstacles in global trade have all combined to hold back growth. While the Bank of Thailand (BOT) faces tough choices, there is growing concern about how the country’s economy will perform going forward.

Signs of Negative Inflation

The Ministry of Commerce has downplayed worries over a full-blown deflation crisis, but many economists remain uneasy. Pipat Leungnaruemitchai, chief economist at Kiatnakin Phatra Financial Group, says that ongoing negative inflation shows that weak demand is the real issue. “Businesses can’t push prices up because customers are weighed down by high debts and flat incomes,” he explains.

Core inflation, which leaves out unpredictable food and energy costs, inched up 1.09% in May. This still falls short of the Bank of Thailand’s target range of 1-3%. The mismatch points to bigger concerns.

Cheaper Chinese exports and falling global commodity prices pull overall inflation down, but the Thai economy’s domestic demand remains weak. A wave of affordable Chinese products has made things even harder for local companies, keeping prices down despite mounting expenses.

This situation cuts into business confidence. Companies put off expansion or hiring. Shoppers, expecting prices to fall even further, delay purchases, which slows the economy even more. Economists at Kasikorn Research warn that if things do not change soon, Thailand risks getting stuck in a cycle of weak spending and falling prices.

Growth Outlook Weakens

The Bank of Thailand says the country’s economy may only grow by 2.0% in 2025, a drop from 2.5% last year. Extra trade barriers like new U.S. tariffs could lower growth to just 1.3%. While exports and consumer spending helped in 2024, the latest data points to softening shipments overseas and weaker confidence at home.

Tourism has not bounced back as expected. The sector made up 19% of Thailand’s GDP before the pandemic, but in 2024, it only reached 12%. A steep fall in Chinese tourists from January to May 2025 and tough competition from countries like Vietnam have made a full recovery harder to achieve.

Even though visitors are spending more per trip, it has not fully balanced out the drop in arrivals. The central bank has already lowered its forecast for tourist numbers this year.

The World Bank holds a slightly brighter view. It forecasts 2.9% economic growth for 2025, helped by steps like the THB 10,000 cash handout. Yet, it warns that if world trade slows further or tourism lags, growth could end up closer to 1.8%.

Rising Household Debt Adds Pressure

Thai households carry one of the world’s highest debt loads. By 2023, household debt had swollen to 91.3% of GDP, with most of it caused by personal and housing loans. The debt-service coverage ratio hit 22.3%, more than double the global average of 9.8%.

Unpaid loans are going up, too, especially in real estate and consumer lending, showing that more families are struggling financially.

A Marketbuzzz survey shows the real-life impact. Forty-two percent of Thai people say they feel stressed about the high cost of living, even though headlines talk about falling prices.

The basics such as housing, utilities, and health costs have climbed 15.3% over the past year, eating into stagnant wages. Married couples with children suffer the most, with nearly half naming living costs as a key concern. On average, households now owe over 600,000 baht, while their monthly expenses total just over 18,000 baht.

Grant Bertoli, CEO of Marketbuzzz, points out, “Low inflation looks good on paper, but it’s not helping most people. Essentials keep getting more expensive, and incomes are not going up.”

The Bank of Thailand has taken a careful path. After raising rates to 2.5% in 2023, the bank has lowered them by 75 basis points since October 2024 to ease borrowing. Analysts see more cuts on the way, with inflation weak and the U.S. dollar losing ground. The challenge for the BOT is real: spark growth, but avoid making the household debt crisis worse or letting the baht fall further. In June, a bigger current account deficit sent the baht down.

The bank’s first Monetary Policy Forum of 2025 stressed the need for smart debt restructuring and clear lending rules to help with the debt problem. It also called for more support for small and midsize firms, which make up almost all of Thailand’s businesses and employ nearly 70% of workers, but still face hurdles in getting loans and dealing with regulations.

Thailand’s Next Moves

Thailand’s economic path will depend on how it manages both internal and external pressures. At home, high debt and shaky consumer confidence threaten the 59% of GDP that comes from household spending. Abroad, ongoing trade tensions, especially between the U.S. and China, and a possible slowdown in those major markets, could hit exports and investment hard.

The government has responded with a new budget awaiting approval that targets growth through loans to smaller firms and more public works. But political tension, made worse by the removal of Prime Minister Srettha Thavisin last August, still keeps many investors on the sidelines.

On the positive side, Thailand’s neutral approach in world affairs and its trade deals, like those with BRICS nations and the ongoing work with the EU, could bring fresh investment. The World Bank points to digital services, green manufacturing, and eco-friendly tourism as strong growth areas. But deep changes—improving skills, raising productivity, and fixing gaps in infrastructure—will be needed to lift long-term prospects.

For now, Thailand sits at a turning point. Without major efforts to ease household debts, bring tourists back, and support modest inflation, the risk of a long economic slowdown remains. As policymakers and the Bank of Thailand plan their next steps, the strength of Thai consumers and businesses will play a key role in shaping the country’s recovery.