Thailand’s Economy Defies Expectations with Strong Q4 Growth as New Government Takes Office

Unexpected Momentum in Final Quarter

Thailand’s economy delivered a surprise performance in the final months of 2025, expanding at a pace that caught forecasters off guard and provided a timely boost for the kingdom’s incoming administration. Gross domestic product grew 2.5% year-on-year during the fourth quarter, according to data released Monday by the National Economic and Social Development Council (NESDC), handily beating the 1.3% median estimate from analysts polled by Bloomberg News.

The quarter-on-quarter figures proved even more striking. After adjusting for seasonal factors, the economy grew 1.9% from October through December, reversing a downwardly revised 0.3% contraction in the third quarter and soaring past forecasts of 0.6% growth. This marked the fastest quarterly expansion in four years, signaling that Southeast Asia’s second-largest economy may be shaking off the torpor that has plagued it for two decades.

Sector Breakdown Reveals Broad-Based Recovery

The robust quarterly performance stemmed from multiple engines firing simultaneously. Industrial activity and retail trade emerged as primary drivers, offsetting continued weakness in the agricultural sector. Investment surged 8.1% in the fourth quarter, a dramatic acceleration from the 1.4% pace recorded in the previous three months, suggesting businesses regained confidence as political uncertainty temporarily eased ahead of the February elections.

Household consumption expanded 3.3% year-on-year, while government consumption rebounded from a contraction in the third quarter to post 1.3% growth. Exports, long the backbone of Thai economic growth, rose 11.9% compared to the same period in 2024, a sharp improvement from the 4.4% growth seen earlier in the year. Despite global trade tensions and the looming threat of American tariffs, Thai shipments found traction in international markets.

However, the full-year picture painted a more sobering portrait. For 2025 overall, GDP growth settled at 2.4%, down from 2.9% in 2024. This deceleration reflects the broader structural challenges that continue to constrain the kingdom’s potential, including a shrinking workforce, soaring household debt levels, and persistent political instability that has transformed Thailand from an aspiring tiger economy into what analysts now describe as a regional laggard.

Political Stability Buoys Market Sentiment

The timing of the economic rebound could hardly be better for Prime Minister Anutin Charnvirakul, whose Bhumjaithai Party secured a stronger-than-expected result in the February 8 general election. The party is currently finalizing a coalition government that promises to bring a measure of stability after years of fractured politics and military interventions.

Anutin has pledged to prioritize economic revival and cost-of-living pressures, proposing measures to support households and employment. The strong GDP data provides his nascent administration with fiscal breathing room and credibility as it confronts an array of external threats, including potential American trade barriers and a slowing global economy.

The strong showing by the Bhumjaithai Party should bolster investor confidence by signaling greater political stability and policy continuity.

Market participants have responded enthusiastically to the prospect of a stable administration. The Stock Exchange of Thailand (SET) Index has climbed past the 1,400-point level, with analysts suggesting it could test 1,450 if the coalition formation proceeds smoothly. Key stocks including Delta Electronics, Minor International, and Airports of Thailand have advanced on expectations that political clarity will unlock delayed investment decisions.

Structural Headwinds Persist

Despite the fourth-quarter enthusiasm, economists caution against overinterpreting the data as a sign of sustained acceleration. Thailand’s annual growth rate of approximately 2% remains less than half the pace recorded by Malaysia and Singapore, and barely a quarter of Vietnam’s expansion. Two decades of political turbulence have left deep scars, contributing to stagnant productivity, widening inequality, and a demographic crisis as the population ages rapidly.

Household debt has climbed to alarming levels, constraining consumer spending power even as headline consumption numbers improved. The manufacturing sector, while showing signs of life in the final quarter, faces tightening business liquidity and competition from regional rivals offering more attractive investment incentives. The World Bank projects growth to slow to 1.6% in 2026, citing weaker global trade, high household debt, and a tourism recovery that remains incomplete compared to pre-pandemic levels.

The Bank of Thailand has already lowered its own 2026 forecasts to a range of 1.3% to 2% depending on tariff scenarios, while the Ministry of Finance has cut its 2025 projection to 2.1% from an earlier 3%, acknowledging that external pressures will weigh heavily on the trade-dependent economy.

Climate Risks Threaten Agricultural Recovery

Complicating the economic outlook further, Thailand faces mounting climate-related risks that could erase gains in the agricultural sector and disrupt supply chains. Meteorological indicators suggest the kingdom is entering a La Niña phase that will bring above-average rainfall and stronger winds through the second half of 2025.

Krungsri Research projects that total flooded area in 2025 could reach 9.5 million rai, causing combined asset and agricultural damage of approximately 23.6 billion baht, or roughly 0.13% of GDP. The North, Northeast, Upper Central regions, and Southern Gulf Coast face particular vulnerability during the third and fourth quarters. The recent flooding in Hat Yai district alone caused estimated losses exceeding 40 billion baht, reducing GDP by approximately 0.22%.

Water levels in large dams currently stand at 57.1% of capacity, above historical averages but still manageable. However, if tropical cyclones coincide with intense monsoon periods, the risk of flash floods in the Chao Phraya River basin could disrupt industrial estates and transportation networks, compounding existing economic vulnerabilities.

Trade Tensions Cast Shadow Over Export Revival

The impressive 11.9% export growth recorded in the fourth quarter faces an uncertain future as trade protectionism rises globally. The United States has signaled potential tariff increases on Thai imports, with some scenarios suggesting rates as high as 36%. While Thai officials hope for a negotiated settlement limiting tariffs to 10%, the uncertainty has already prompted the Ministry of Finance to slash export growth forecasts for 2026 to 2.0% from earlier projections of 4.4%.

Tourism, another critical pillar of the economy, has also shown signs of strain. Foreign arrivals are now expected to reach 36.5 million in 2025, down from previous estimates of 38.5 million, while spending per capita has declined as visitors adopt more cautious budgeting. The kingdom has yet to recover the 40 million annual visitors seen before the COVID-19 pandemic, losing ground to competing destinations that have streamlined visa processes and expanded air connectivity.

Capital Economics Asia economist Shivaan Tandon noted that while the election outcome should reduce near-term political risk, it does little to improve an otherwise challenging economic outlook. Tight fiscal targets will likely constrain the new government’s ability to deliver sustained stimulus, while cyclical headwinds and structural constraints continue to cap growth potential.

Forecast Revisions Reflect Cautious Optimism

In response to the stronger-than-expected fourth quarter data, the NESDC has revised its 2026 growth projection to a range of 1.5% to 2.5%, up from the previous forecast of 1.2% to 2.2%. The planning agency anticipates that exports will increase by 2.0% next year, improving from an earlier projection of a 0.3% decline, assuming manageable trade friction and a gradual recovery in global demand.

The Thai baht has strengthened modestly against the US dollar following the GDP release, though currency appreciation itself presents challenges for export competitiveness. The NESDC expects private consumption and government spending to support growth in the coming year, alongside a continued recovery in tourism-related sectors.

Danucha Pichayanan, secretary general of the NESDC, emphasized that supporting factors for the revised outlook include the expansion of private consumption, government spending, and the recovery of tourism. Yet he acknowledged that Thailand must navigate carefully through an environment of elevated household debt, potential trade barriers, and financial constraints that could yet derail the fragile recovery.

The Bottom Line

• Thailand’s Q4 2025 GDP grew 2.5% year-on-year and 1.9% quarter-on-quarter, beating estimates of 1.3% and 0.6% respectively
• Full-year 2025 growth reached 2.4%, down from 2.9% in 2024, reflecting persistent structural challenges
• Investment surged 8.1% and household consumption rose 3.3% in the final quarter, while exports jumped 11.9%
• Prime Minister Anutin Charnvirakul’s Bhumjaithai Party secured election victory and is forming a coalition government
• 2026 growth forecasts range from 1.5% to 2.5%, though the World Bank predicts 1.6% and the Bank of Thailand forecasts 1.3% to 2%
• Key risks include US trade tariffs, La Niña-related flooding potentially costing 0.13% of GDP, high household debt, and regional competition
• Thailand remains a regional laggard with 2% annual growth, trailing Malaysia, Singapore, and Vietnam