Cargo ships are pictured near the port in Bangkok, Thailand, March 25, 2016. REUTERS/Athit Perawongmetha/ File Photo

BANGKOK (Reuters) -Thailand's manufacturing production index in July dropped for the first time in four months to reach its lowest level in nearly two years, the industry ministry said on Thursday, weaker than forecast after falling car production.

The MPI contracted 3.98% in July from a year earlier, versus a forecast year-on-year fall of 1.1% for July in a Reuters poll. It followed a revised annual rise of 0.41% in June.

Output was also weighed down by tighter bank lending and declining industrial sentiment, the ministry said, with the economy facing high household debt as well as U.S. tariffs.

The MPI index has fallen 0.7% on an annual basis in the first seven months of 2025, and the industry now predicts growth of zero to 0.5% for the whole year, versus a previous forecast of zero to 1% growth.

After a strong start to the year, when businesses cranked up output before U.S. tariffs kicked in, production activity has now slowed down, Passakorn Chairat, head of the ministry's industrial economics office, told a press conference.

"Manufacturers have used up quite a bit of inventory. Currently, they are observing the direction in order to adjust production plans," he said.

The U.S. set a 19% tariff on imported goods from Thailand, lower than the 36% rate announced earlier and in line with other countries in the region.

However, there are still uncertainties relating to U.S. tariffs on transshipments via Thailand from third countries.

Car production in Thailand, a regional automaking centre, fell 11.39% in July from a year earlier, the first annual fall in three months, according to the Federation of Thai Industries.

(Reporting by Orathai Sriring and Thanadech Staporncharnchai; Editing by John Mair)