IMF sees US and Chinese economic growth to slow down in 2025 but with lower risks of recession; China focused on further stimulus measures
US
Donald Trump is gaining a lead in the polls a week before US election, raising risk of trade wars. In October, the Composite PMI rose to a 2-month high of 54.3, led by growing services sector. However, manufacturing continues to contract for the 4th consecutive month, at 47.8. The consumer confidence index rose to a 6-month high of 70.5, thanks to a 50-bp interest rate cut in September. Additionally, the IMF raised its US economic growth forecasts for 2024 and 2025 from the previous July estimates of 2.6% and 1.9% to 2.8% and 2.2%, respectively.
Improving labor markets, an expanding service sector, and softening inflation to get closer to the 2% target all have helped to pave the way for the Fed to loosening monetary policy, which would reduce the risk of recession. Nevertheless, financial conditions remain tight and with a large uptick in refinancing expected for 2025 and 2026, debt delinquencies are likely to rise, putting pressure on consumer purchasing power and business revenues. In addition, with the 5th November US presidential election only a week away, the polls have shifted slightly in favor of Donald Trump. This is adding to uncertainty over future policy with regard to immigration, tax, trade and international relations, and because this may then adversely impact the labour force, fiscal burden, the cost of imports, prices, as well as the overall economy and financial markets. Given the US economic slowdown and policy uncertainties, Krungsri Research expects the Fed to gradually lower interest rates, likely by 25 bps at each of the remaining two meetings this year, bringing the Fed Funds rate down to 4.25-4.50% by year-end. Also, the policy rate is projected to decline further to 3.25-3.50% by the end of 2025.
Eurozone
Eurozone’s recovery delayed by worsening economic indicators and rising trade tensions. Lending to households grew for the 5th straight month by 0.7% YoY in September, while non-financial business lending reached a 14-month high, expanding by 1.1%. However, the Composite PMI fell for the 2nd month to 49.7 in October. Although the manufacturing PMI edged up from 45.0 to 45.9, services, which have been the main driver of the economy, are losing momentum, with its PMI has fallen to an 8-month low of 51.2. Additionally, the IMF has downgraded its Eurozone economic growth forecast to 0.8% for 2024 and 1.2% for 2025, down from its July estimates of 0.9% and 1.5%, respectively.
Although inflationary and interest rate pressures have eased, Eurozone’s economic recovery remains weak, aligning with the IMF’s outlook amid shrinking manufacturing and weak momentum in the services sector. Low lending growth, a slowing labor market, and subdued private consumption - which is reflected in the household savings rate reaching a 3-year high - further indicate ongoing economic challenges. Additionally, rising trade tensions with China and uncertainties around global economic and trade policies in post-US presidential election pose challenges to the Eurozone's recovery in the future. Given these factors, Krungsri Research projects that the European Central Bank (ECB) will continue to lower interest rates, bringing the policy rate to 3.00% by the end of 2024 and 2.00% by the end of 2025.
China
Chinese government is ramping up its stimulus measures. The IMF has revised down China’s 2024 growth projection from 5% to 4.8% and expected the growth to decelerate further to 4.5% in 2025 and 3.3% by 2029. In Q3, China’s economic growth slowed to a 6-quarter low of 4.6% YoY amid weak consumption. Meanwhile, the government has lowered the 1-year and 5-year loan prime rates (LPR) from 3.35% to 3.1% and from 3.85% to 3.6%, respectively. The government also plans to roll out measures to boost recreational spending next month in several cities, including Shanghai, Beijing, Guangzhou, Tianjin, and Chongqing.
China continues to face several headwinds, such as weak consumption, oversupply in certain sectors, the real estate crisis, an aging population, slower productivity growth, local government debt, trade and tech wars, and geopolitical conflicts, which could worsen supply chain disruptions and global fragmentation. However, ongoing stimulus efforts are expected to support economic growth this year and reduce the risk of a slowdown spreading from the real economy to the financial sector. Meanwhile, infrastructure investment and promoting New Quality Productive Forces could boost China's self-reliance and help mitigate negative impacts of external challenges that might undermine long-term economic growth.
Krungsri Research sees private investment growing by just 0.2% in 2024, while full-year exports may grow above 2%
Although at more than THB 700bn, the value of applications for investment support rose to its highest in a decade, other indicators show that overall investment will expand only slightly in 2024. Data from the Board of Investment (BOI) show that over the first 9 months of 2024, 2,195 applications for investment support were submitted to the BOI (+46% YoY), which had total investment value of THB 722.5bn (+42% YoY). These were most concentrated in electronics and electrical appliances (THB 183.4bn), the digital industries (THB 94.2bn), the automotive and auto parts industry (THB 67.8bn), agriculture and food processing (THB 52.9bn), and chemicals and petrochemicals (THB 34.3bn). Foreign direct investment (FDI) applications for investment support came from 1,449 projects (+66% YoY) with total investment value of THB 546.6bn (+38% YoY). Among these, the most important sources of capital inflows were Singapore, China, Hong Kong, Taiwan and Japan.
Investment promotion applications in both number and value have grown, with 2,072 projects (+59% YoY) and a total investment of THB 672.2bn (+101% YoY) reaching the stage of investment promotion certificates, a step close to actual investment likely within the next 1-3 years. This suggests a positive investment trend in the future. For 4Q24, increased public investment driven by the disbursement of the government budget for FY2025 (Oct 2024-Sep 2025) could boost related private sector investments. However, private investment in 1H24 contracted by -0.9% YoY, and recent investment indicators show a fragile recovery. For instance, September's Business Sentiment Index (BSI) dropped to its lowest level in nearly 3 years and remained below 50 (indicating a contraction zone) for the 12th consecutive month. The Industrial Production Index (IPI) also contracted by -1.9% YoY in August. As a result, Krungsri Research forecasts overall private investment growth for 2024 to be low at 0.2%, down from 3.2% in 2023.
September exports continued to grow, supporting Q3 growth, but several headwinds may pressure future exports. The Ministry of Commerce reported that September export value grew by 1.1% YoY to USD 26 bn, the third consecutive month of growth but slowing from August’s +7.0%. Excluding gold and oil-related products, exports grew by 3.1%. Key export products that saw growth included rubber (+47.4%), computers & components (+25.5%), air conditioners & parts (+22.5%), pet food (+21.5%), rubber products (+15.7%), canned & processed seafood (+15.6%), rice (+15.2%) and chemical products (+4.4%). On the other hand, exports of some categories contracted, such as automobiles, equipment, & parts (-9.9%), plastic resin (-5.2%), sugar (-10.4%), and cassava products (-29.2%). Exports to key regions expanded, led by the US, the EU, and CLMV, while exports to China, ASEAN-5 and Japan declined. For the first 9 months of 2024, export value grew by 3.9% YoY, or 4.0% excluding gold and oil-related products.
Despite slowing growth, September export value remained above the average of the first 8 months of 2024 (at USD24.6 bn per month), supported by a recovery in the global electronics cycle and a rise in demand for agricultural and food products. As a result, Q3 export value reached a quarterly record high of nearly USD78 bn, growing 7.5% YoY. This raises the possibility that 2024 exports may exceed the anticipated 2% growth. However, future exports face challenges, such as (i) slowing economies in key trading partners like the US and China, (ii) domestic flooding impacting some agricultural outputs, (iii) geopolitical tensions, (iv) an intensifying trade war, and (v) structural issues in Thailand’s industrial sector, along with China’s excess supply flooding the global and Thai markets, impacting Thailand’s high-cost production and exports.
