Global: Steady Growth, But Rising Uncertainty is a Major Threat

 

IMF expects global growth to be stable yet underwhelming; risks are tilted toward the downside amid policy uncertainty; structural headwinds will cap growth

 

Global growth to be capped by subdued demand for manufactured goods despite an expanding services sector; uncertain policy direction is a key risk for growth and inflation

Trump’s tariffs policy - Scenarios

These scenarios illustrate the varying levels of economic impact based on policy enforcement and the degree of retaliation by trade partners. The possible responses from key stakeholders and foreign governments provide a framework to understand how such trade policies could influence broader economic conditions, from consumer prices to international relations.

Scenario 1: US imposes 60% tariff on all Chinese goods – this would hit the US, China and global economies, while ASEAN could benefit from higher exports and investment

In this scenario, the adverse impact on China’s exports (-5.78%) would be worse than for US exports (-1.95%). But, higher costs triggered by tariff hikes have more twice the impact on US investments than China, leading to greater overall impact on US GDP (-0.68%) vs China’s GDP (-0.24%). Globally, these tariffs could reduce global exports by 0.64% and global GDP by 0.17%, mainly due to higher production costs, lower productivity, and reduced demand in major economies (e.g., the US, the EU, and China). Within ASEAN, Vietnam would be a key beneficiary, gaining from stronger exports and production relocation, though higher import costs would limit the improvement. Meanwhile, Thailand would experience a mild positive impact, with gains in some exports such as electronics & electrical equipment (+9.2%) and textiles, leather, & footwear (+3.4%). However, broader growth remains constrained due to Thailand’s participation in the Chinese supply chain and reduced demand from key partners, especially from the US and China.

Scenario 2: US imposes 60% tariff on all imports from China and 20% on all imports from other countries – the impact would be worse and hit the US harder than China; smaller export gains for ASEAN despite higher investment

The additional 20% uniform tariffs on all imports from other countries would worsen the impacts significantly. The US would see a sharper drop in exports, investment, and GDP than the rest of the world. The effects on US exports, investment, and GDP would be 14.2, 3.4, and 1.4 times worse than under the first scenario, respectively, partly due to the surge in import costs faced by US firms, which would raise production costs, particularly in upstream markets dominated by China. The impact on Chinese exports and GDP would be similar to Scenario 1. ASEAN countries would see weaker exports, directly from the 20% uniform tariffs and indirectly through their links in China’s supply chains. Nevertheless, ASEAN nations, especially Vietnam and Thailand, could benefit from production relocation. These opposing forces would result in little change to the overall ASEAN GDP growth.

Scenario 3: China imposes 60% retaliatory tariffs on US goods – this would worsen the impacts on US and China; ASEAN would still see weaker exports despite gains from investment relocation

In this worst-case scenario, where the combination between Scenario 2 and China’s retaliation by imposing 60% tariffs on all imports from the US, the negative impacts would intensify. Especially for the US, the drop in exports would be 1.1 and 15.5 times greater than in Scenario 1 and 2, respectively. China’s export losses would also deepen but remain less severe than for the US. There would be a larger negative impact on China’s GDP than in Scenario 1, as the tariffs would raise costs for domestic industries and limit access to key US goods, potentially disrupting its supply chains. In contrast, the impact on US GDP would be similar to Scenario 2 as US consumers might spend more on domestic goods (+8.2%) than imported goods (-35.2%). The global impact would be minimal because the substitution effect would ease export losses for countries with lower tariffs. ASEAN export losses would be slightly less than in Scenario 2, and the impact on GDP remains close to zero and similar to Scenario 2, as ASEAN would continue to benefit from production relocation which would mitigate the negative effects of reduced global demand.

Trump would likely adopt a strategic approach to minimize losses for the US but still benefit from tariffs

• If Trump’s administration pushes through the proposed tariff hikes, the US economy would experience larger losses than China, especially for upstream industries that are dominated by China.

  • However, Trump might favor a less extreme or targeted approach. It would focus tariff hikes for strategic goods, such as electric vehicles and lithium-ion batteries

  • Trump could use tariff threats as leverage to negotiate preferential trade deals with other nations, potentially adopting a more flexible or reduced tariff approach. This would reduce the overall impact but still enable the US to gain strategically from tariff hikes. This could mean a milder version of the worst-case scenario.

• Less severe impact on China: The negative impacts would be generally less severe on China than the US. However, China would face larger economic losses as the trade war escalates. If China were to impose retaliatory tariffs, it would raise costs for domestic industries and restrict access to key US goods, which could disrupt Chinese supply chains as China’s manufacturing sectors remain heavily dependent on exports.

• ASEAN could benefit from the shift in investment direction. However, these gains may be smaller if the US imposes additional tariffs on sectors with strong links to China, including potential AD/CVD measures for solar cells.

• Losses and gains in key export sectors: The hardest hit sectors in China and the US under the worst-case scenario would be Electronics & Electrical Equipment, Rubber & Plastics, and Textiles, Leather, & Footwear due to their interdependency in the global supply chain. Thailand and ASEAN exports could see gains from the substitution effect in Electronics & Electrical Equipment and Textiles, Leather, & Footwear, but the gains may fade or be lost if the US imposes additional tariffs or China retaliates.

US: Economy is heading for a soft-landing amid a cooling labor market, suggesting gradual policy easing ahead; uncertainty over economic policies is a key risk

The US economy is expected to grow at a slower pace of 2.2% in 2025, compared to 2.8% in 2024. The expanding services activity, positive wealth effect, and easing monetary policy would improve economic conditions, but overall economic expansion could slow down amid a cooling labor market, weaker wage growth, and rising delinquency rates in consumer and credit card loans amid still-high real interest rates. A further contraction in manufacturing activity and the slowdown in issuing building permits could also reduce positive cyclical forces. The latest signs of decelerating growth and easing inflation suggest gradual policy easing ahead, but greater uncertainty over Trump’s policies could threaten the US economy.

Trump’s proposal to cut taxes and deregulation policy could create bubble risks, tariffs and immigrant policy could hurt growth and raise inflation, complicating Fed’s easing decision

 

Eurozone: Recovery would be delayed by worsening sentiment and rising trade tensions

The eurozone economy is projected to experience a slow and fragile recovery, with a growth rate averaging 1.25% in 2025 vs 0.83% in 2024. Despite easing inflationary and interest rate pressures, economic recovery remains weak amid the still-contracting manufacturing sector and sluggish credit growth. However, private consumption is expected to recover slowly given lower inflation and strong wage growth, despite still-weak economic sentiment (reflected by a 3-year high household saving rate). Additionally, rising trade tensions with China and uncertainty over global economic and trade policies following Trump’s victory in the 2024 US presidential election will pose challenges to the Eurozone’s recovery in 2025.

Softening inflation towards the 2% target and still-weak recovery would allow ECB to continue to cut policy rates

 

Japan: Economic stimulus, wage growth, and tourism to drive recovery, but growth would be capped by weak manufacturing activities and exports

Japan’s economy is showing signs of bottoming out and will start to recover soon, driven by: (i) gradual recovery in consumer spending supported by real wage growth and improving confidence; and (ii) the government’s economic stimulus program which focuses on "pulling Japan out of deflation" by addressing living costs, achieving sustainable wage hikes, and increasing private sector investments. However, recovery will remain fragile because of subdued manufacturing activities and exports due to slowing economies at its major trade partners like US and China, intense competition in the automotive industry, and the risk of escalating trade wars.

Given the uncertainty over trade and politics and still-slow growth, the BOJ would not be in a hurry to hike rates

 

China: Major economic engines continue to move forward with consumption boosted by stimulus measures, but existing headwinds would cap overall growth

The economy has improved recently and is expected to maintain this momentum into early 2025. The service sector would continue to drive growth while manufacturing in several sub-sectors might remain weak due to excess supply. Consumption, though still subdued, is projected to pick up in 1H25 supported by additional subsidies. However, this positive trend might weaken if property measures fall short of expectations to deliver a sustainable improvement in wealth and sentiment. Moreover, a weak labor market could dampen the pace of consumption recovery. Investment could also improve as domestic demand recovers. Exports could see a temporary rebound as businesses try to clear inventories ahead of the anticipated tariff increases. Despite the improvements, structural weaknesses would continue to limit economic growth, which is projected to slow from 4.8% in 2024 to 4.5% in 2025.

Oversupply and real estate downturn could ease with more stimulus measures, but structural challenges and external risks continue to cast a long shadow

 

Thai Economic Outlook 2025

 

 

Thailand: 3Q24 GDP grew by 3.0% YoY, faster than +2.2% in 2Q24; we raise 2024 growth forecast to 2.7% based on this and accelerating public spending

 

Krungsri Research Forecasts for 2024-2025

2025: Year of normalization and a temporary rebound amid structural headwinds and policy uncertainty

• Krungsri Research projects the Thai economy to grow by 2.9% in 2025, up slightly from an estimated 2.7% growth in 2024.

• Normalized public spending will provide a transitory boost to overall economic growth in 2025.

• Investment growth is likely to turn positive with only mild expansion, supported by accelerated public investment and investment relocation. 

• Tourism sector to recover to pre-pandemic level, supported by rising demand, improving supply, and visa-free scheme.

• Exports will grow at a moderate pace amid structural headwinds, sub-par global growth, and uncertain US trade policy. Consumption growth to normalize in line with overall economic expansion, driven by a growing services sector, improving labor market, and stimulus measures. High household debt, weaker agricultural prices, and fading post-COVID tailwinds will slow down growth.

• ​Expect MPC to cut policy rate to 2.0% by 1Q25, to ease financial strain and nurture further recovery.

• ​Risks & Challenges: (i) Escalating trade tensions, US policy uncertainty, and geopolitical risk; (ii) Influx of Chinese imports; (iii) Climate fluctuations (risk of La Niña); (iv) Structural problems such as high household debt and weaker competitiveness; (v) Policy uncertainty and political risk in Thailand.

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Normalized public spending will provide a transitory boost to overall economic growth in 2025; A surge in capital budget expenditure will support investments

Public spending will return to normal disbursement levels in FY2025 (Oct'24-Sep'25) after long delays in FY2024. The FY2025 annual budget of THB 3.75 trn (+4.2% YoY) consists of THB 2.70 trn (+6.5%) for current budget expenditures and THB 0.91 trn (+26.5%) for capital budget expenditures. FY2025 budget deficit will rise to THB 0.87 trn, accounting for 4.5% of GDP, the highest in Thailand’s history. We expect the accelerated disbursement of the capital budget, along with progress in mega infrastructure projects (including the three-airport high-speed rail link, Laem Chabang Port Phase 3, and several dual-track railway projects) to boost related investments in the private sector.

Private investment growth likely to turn positive in 2025 with only mild expansion after weakness in 2024; it would be constrained by structural problems in key industries

Private investment had been slow in 2023-2024 but is expected to register mild growth in 2025, supported by (i) accelerated public investment after a long delay in budget disbursement in 2024; (ii) expanding domestic and tourism activities; (iii) incentives for targeted industries such as data centers, electric vehicles (EVs), bio-industries, clean energy, and air transportation; and (iv) the relocation of production bases of some industries to ASEAN and Thailand in response to rising trade tensions. However, overall private investment will continue to be constrained by weak domestic demand, structural challenges in key industries, and uncertainty over the direction of domestic politics.

BOI indicators signal positive outlook for investment in certain industries

In the first 9 months of 2024, the BOI received applications for investment incentives for 2,195 projects (+46% YoY) with a total investment value of THB 722.5bn (+42%), led by electrical & electronics, machinery & vehicles, and digital industries. There were Foreign Direct Investment (FDI) applications for 1,449 projects (+66%) with a total investment value of THB 546.6 bn (+38%), led by Singapore, China, Hong Kong, Taiwan and Japan. For FDI applications in the Eastern Economic Corridor (EEC), there were 811 projects (+59%) with a total investment of THB 422 bn (+39%), led by smart electronics, the digital industries, and next-generation automotive. The BOI has issued certificates for investment for 2,072 projects (+59%) with a total investment of THB 672.2bn (+101%), which would likely materialize within the next 1-3 years. The Asia Pacific consensus forecasts indicate Thailand's net FDI will rise to USD 12.4 bn in 2025 vs an estimated USD 8.8 bn in 2024. However, this remains below the 2018 level, before the COVID-19 pandemic.

Tourism sector will remain a key economic driver, with foreign tourist arrivals expected to reach the pre-pandemic level of 40mn in 2025

In the first 10 months of 2024, foreign tourist arrivals totaled 28.8 mn (88% of pre-Covid level) and generated THB1.34 trn receipts (87% of pre-Covid level). Arrivals from Malaysia, Russia, South Korea, and India reached 99-126% of pre-pandemic levels. Chinese tourists are returning slowly, at only 62% of pre-Covid level. In 2025, we expect foreign tourist arrivals to reach 40 mn, compared to an estimated 35.6 mn in 2024. Chinese and Malaysian tourists will remain key markets, followed by other high-potential growth markets including ASEAN countries and Eastern Europe. Chinese tourists are expected to reach 11mn in 2025 (same level as in 2019), driven by visa-free measures and ongoing tourism promotion activities between Thailand and China.

Travel into Thailand through major airports is nearing pre-pandemic levels; Thailand remains a top destination for international tourists

The tourism sector is showing signs of recovery, with passenger traffic at Thailand's five major airports nearing/exceeding pre-COVID levels, led by Hat Yai Airport at 113% and others reaching 60-85% of pre-pandemic levels. Agoda, a leading global online travel platform, highlights positive factors driving Thailand's tourism recovery to pre-COVID levels next year, including: (i) the visa-free policy implemented in 2024 has resulted in a 30% increase in Indian tourists and a 16% increase in Taiwanese tourists; (ii) increased flight capacity to Thailand expected to grow by 6% in 2025; and (iii) Thailand ranked as the second most popular destination for repeat visitors after Japan. Additionally, the IATA projects international airline passenger volume will return to pre-COVID levels by 2025.

Exports are expected to grow modestly amid structural challenges in manufacturing sector and rising trade tensions

Thai exports are expected to grow at a moderate pace in 2025, supported by (i) a gradual global economic recovery, (ii) demand in the electronics sector driven by the growth of the digital economy, and (iii) growing tourism and services sectors, which would boost exports of related goods, such as food, beverage, and agricultural products. However, exports still face challenges from structural problems and trade tensions between the U.S. and China, both of which are Thailand’s key trading partners.

Exports to grow along with global trade, but weak manufacturing sector and US-China trade tensions remain key risks

The IMF projects global economic growth will be stable in 2025. The WTO forecasts global trade volume will grow by 3.0% in 2025 from 2.7% in 2024, supported by softening inflation and lowering interest rates. However, negative signals in the global manufacturing sector and new export orders, which remain in contraction territory (index below 50), could dampen export growth. Escalating US-China trade tensions could also affect Thailand’s exports in the coming period. In the case of the US imposing tariffs on imports from all countries, including Thailand, with China’s retaliation, our study shows that Thailand may not benefit from rising trade tensions.

US trade policy may benefit some industries but would be negative for most industries

Consumption growth to normalize in line with overall economic expansion but slower than in recent years due to fading post-covid benefits, structural issues, and declining farm prices

In 2025, private consumption would continue to expand, albeit at a slower pace than previous years, supported by: (i) growth in tourism activities, (ii) government stimulus measures, including a planned budget allocation of over THB153 bn under FY2025 budget for Digital Wallet Program, (iii) a stronger labor market, with employment levels across most sectors exceeding pre-pandemic levels, and (iv) falling borrowing costs in line with lower interest rates. However, there are several concerns: (i) still-weak consumer confidence, (ii) an expected drop in farm income in 2025 due to lower agricultural prices, and (iii) structural challenges from high household debt levels.

Employment and nominal wages have risen beyond pre-covid levels, but real wage remains weak especially in manufacturing sector, reflecting still-weak purchasing power

Since the Covid-19 pandemic ended, employment and nominal wages across most sectors in Thailand have surpassed pre-pandemic levels by an average of 6.8% and 11.7% in 2024. However, real wages have only seen a mild recovery led by the agriculture, trade, and tourism sectors, which are 47.0%, 44.2%, and 28.5% higher than pre-pandemic levels, respectively. In the manufacturing sector which is suffering from structural problems, employment is 2.2% below the pre-covid level, suggesting it is affected by structural issues such as lower competitiveness, higher competition, or weaker labor productivity. Overall, the key indicators suggest persistent headwinds and still-weak purchasing power, as real wage has risen by only 3.2% between 2019 and 2024, or an average of around 0.6% per year.

Vulnerable Thai households remain struggled as their assets decline

The household debt problem in Thailand remains challenging due to the increase of delinquent loans and non-performing loans (NPLs) across various types of credit. NPLs in auto loans have risen from a pre-covid level of 1.86% to 2.30% of total loans in 3Q24, while Significant Increase in Credit Risk (SICR or Stage 2) auto loans have surged from pre-covid level of around 7.43% to 15.69% of total loans. Besides, the warning signs of bad debt have now extended to mortgage loans as Stage-2 loans have continued to increase. Amid the decline in debt quality and Thailand's sluggish economic growth, asset values have decreased among certain household groups, particularly those with monthly incomes below THB 20,000 and those with incomes above THB 100,000. This is evident in assets such as real estate and vehicles, which are closely tied to the lives of most people and have seen a significant increase in their delinquency rates. In addition, financial assets for investment had also declined following lower prices of financial assets amid higher interest rates and sluggish economic growth.

Post-covid liquid assets of Thai households increase only slightly, while most households see their expenses outpacing income; Targeted measures needed to address debt burden

During 2021-2023, total liquid assets for each household increased by an average of 8,238 baht per year, mainly coming from the increase in deposits and other financial assets rather than a rise in net income (as income has increased at the same pace as expenses). This reflects the relatively weak and slow-growing consumption of households. In particular, households with earnings of less than 30,000 baht per month (accounting for 67% share of total households) have been struggling with their expenses outpacing their income growth (expense-to-income ratio exceeding 100%). Meanwhile, high-income households (earning over 100,000 baht per month) have faced a decline in their total liquid assets, mainly due to a drop in the value of their financial assets for investment. However, the consumption capacity of households earning over 50,000 baht per month remains relatively strong. This is reflected in their income growth outpacing expenses (expense-to-income ratio below 100%), indicating that middle-to high-income households will continue to contribute to consumption. On the other hand, low-income households remain financially vulnerable.

Government plans to introduce measures to ease debt burdens for vulnerable groups

To support individual borrowers and small business operators (SMEs) that are struggling with debt repayment due to slow and uneven economic recovery, the Thai government, in collaboration with relevant agencies such as the Bank of Thailand (BOT), the Ministry of Finance, and financial institutions, have been working on details of measures to ease their financial burden. These measures aim to support economic recovery and address the challenges posed by high levels of household debt and NPLs. The program specifically targets borrowers who are committed to improving their financial status and demonstrate potential for recovery. They also seek to promote financial discipline, mitigate long-term debt risks, and prepare for structural debt resolution strategies in the future.

Headline inflation is expected to rise to close to low-end of BOT’s target range in 2025

Expect MPC to cut policy rate to 2.0% by 1Q25 to ease financial strain and nurture recovery

We expect the Monetary Policy Committee (MPC) to cut the policy interest rate by 25bps to 2.0% by the first quarter of 2025, to mitigate the impact of tightening financial conditions which have led to high borrowing costs, and reduced debt repayment capacity and increased the risk of non-performing loans. At end-3Q24, NPLs at Thai commercial banks stood at 2.88% of total loans, with approximately one-third attributed to consumer loans. Lower interest rates are expected to help encourage consumption and investment as well as enhance liquidity in the financial system, ultimately supporting the economic recovery in the period ahead.

Risks & Challenges

Economic impact of higher tariffs

 

Influx of Chinese imports and slower recovery in domestic production could hinder Thailand’s economic growth prospects

As domestic production stagnated or declined post-COVID, imports from China have surged across most sectors. In computers & electronics, electrical machinery, and other machinery & equipment, imports have even surpassed local production. The food & beverages sector is one of the few sectors in which trends remain positive. This sharp contrast presents two key challenges. First, the influx of cheaper Chinese goods has intensified competition and might have partly contributed to the closure of factories and job losses. Second, domestic productivity might not have returned to pre-COVID levels, leaving local businesses struggling to compete with foreign firms. This dual challenge could threaten Thailand’s longer-term economic growth prospects.

Risk of flooding as water levels in major dams could reach new highs in 1H25 and annual rainfall is expected to exceed the historical average in 2025

 

New round of wage hikes could put new pressure on businesses with negative productivity-wage gaps, particularly in key manufacturing sectors

 

Key factors in 2025: Growth to pick up following normalized public spending, stimulus measures, and tourism activity recovering to pre-covid levels; but there are still structural and external risks

 

APPENDIX

Since the trade wars started, ASEAN exports to the US and China have increased.

Since 2018, ASEAN has been benefitting from trade reorientation. This is seen in the surge in the share of China’s and the US’s imports from ASEAN and a sharp drop in the US’s share of imports from China. For Thailand, exports to the US had risen from 11.1% of total exports in 2018 to 16.8% in 2023, while export share to China has been stable at 11.9%, suggesting the trade war has resulted in the diversion of US imports from China to other countries, including Thailand. In addition, the export of Thailand’s key products to the US has increased and partly offset declining exports to China, including computer & electronics (CEQ), wood products (WOD), electronic machinery (ELQ), machinery & equipment (MEQ), and motor vehicle (MTR). The escalating US-China trade war would damage the global economy with greater trade protectionism, but it would also create opportunities for Thai exports in certain product segments.

Scenario 1: By sector, many industries would be hurt by tariff hikes due to slower global demand, but some may benefit from the substitution effect and production relocation.

This scenario shows positive effects on Thailand and ASEAN exports, triggered by the substitution effect and production relocation, particularly in Electronics & Electrical Equipment (CN -10.1%, TH: +9.2%, ASEAN: +4.8%) and Textiles, Leather, & Footwear (CN: -7.4%, TH: +3.4%, ASEAN: +14.7%). However, most sectors would see some losses as global demand weakens, driven by higher consumer prices and production costs, especially in the US and China. This poses challenges for Thailand and ASEAN going forward, as exports remain a key growth driver. Sectors such as Chemicals & Pharmaceuticals (TH: -2.5%, ASEAN: -1.9%), Agriculture (TH: -2% and ASEAN: -1.1%), and Metals & Non-metals (TH: -1.6%, ASEAN: -1.7%) would be most affected. However, losses in ASEAN GDP could be mitigated by an increase in investment.

Scenario 2: By sector, most countries, led by the US, would see broader and larger declines in exports; Thailand to see a shift from gains to losses/weaknesses in most sectors

The US would experience a significantly larger negative impact across sectors, particularly in Electronics & Electrical Equipment (-39.4%) and Textiles, Leather & Footwear (-31.4%). However, the impact on China would be similar to Scenario 1, with larger positive gains as well as losses. Meanwhile, Thailand would see shifts from gains to losses in some sectors, such as Electronics & Electrical Equipment (+9.2% to -0.7%) and Textiles, Leather & Footwear (+3.4% to -2%). Some sectors might see deeper losses, including Rubber & Plastics (-0.3% to -3.3%). Conversely, the negative impact might be less on some sectors such as Agriculture (-2% to -0.7%) and Motor Vehicles (-0.7% to +2.6%). Other ASEAN nations, such as Vietnam, also show mixed results, with some sectors facing greater losses or smaller gains, such as Textiles, Leather, and Footwear (from +15.5% to +2.8%).

Scenario 3: By sector, negative impacts would worsen for US and China, and Thailand and ASEAN would see smaller export gains from the trade war if both sides retaliate

Both sides in the dispute would suffer greater losses than Scenario 2. The US would see severe and across-the-board declines in exports, particularly in Electronics & Electrical Equipment (-42%), Textiles, Leather & Footwear (-32.6%), and Motor Vehicles (-29.8%), due to their deep ties to global supply chains, especially with China. China would also see losses across most sectors but the impact would be less severe than for the US, except in Coke & Refined Petroleum and Chemicals & Pharmaceuticals. Thailand would benefit the most in Agriculture (+7.9%), Motor Vehicles (+2.5%), and Coke & Refined Petroleum (+2.1%). The overall impact on ASEAN would be similar to Scenario 2. However, there could be excessive optimism over Thailand’s and ASEAN’s gains from the trade war, especially if both sides retaliate.