GDP growth surges to a two-year high in Q3

Q3 reading beats market expectations: GDP growth picked up to 3.0% year on year in the third quarter from 2.2% in the second quarter, marking the strongest result since Q3 2022. The improvement stemmed from accelerating public spending and rebounding fixed investment, surprising markets on the upside. On a seasonally adjusted quarter-on-quarter basis, economic growth accelerated to 1.2% in Q3 from the previous period's 0.8% expansion, marking the best result since Q1 2023.

Government spending and fixed investment buoy momentum: Domestically, public consumption hit an over two-year high of 6.3% in Q3 (Q2: +0.3% yoy). Social transfers grew by a whopping 36.9% in the quarter, and public expenditure on goods and services rose for the first time in a year. Total investment also rose for the first time in 12 months, growing 5.2% in Q3 (Q2: -6.1% yoy). Surging public investment and a softer drop in private investment largely drove the improvement. Less positively, private consumption growth fell to an over two-year low of 3.4% in the third quarter (Q2: +4.9% yoy). This moderation stemmed from a slowdown in most spending categories and a persistent decline in durable goods purchases. On the external front, exports of goods and services growth picked up to 10.5% yoy in the third quarter, which marked the best reading since Q1 2022 (Q2: +4.7% yoy). In addition, imports of goods and services growth picked up to 9.6% in Q3 (Q2: +1.3% yoy).

Upbeat economic outlook but downside risks loom: Looking ahead, the economy is forecast to accelerate further in Q4 before gradually losing steam by end-2025. Nevertheless, 2025’s full-year growth will exceed 2024’s projection thanks to stronger momentum in public spending and a rebound in fixed investment. On the flipside, private spending and exports will both shift to a lower gear next year. Risks are tilted to the downside and include rising U.S. tariffs under Trump plus weaker-than-expected domestic demand, fiscal stimulus and tourist arrivals.

Panelist insight: EIU analysts commented on the outlook: “We expect private consumption to continue to grow in subsequent quarters, as the government launched the first phase of the digital cash scheme in September, which benefited nearly 14.5m people. The front-loading of exports ahead of the expected higher tariffs from the US in 2025 will help to lift exports in the fourth quarter of this year and early next year. Lower interest rates after the first rate cut in October by the Bank of Thailand (the central bank) will ease the interest burden for borrowers in the quarters ahead.”

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