US economy grows amid uncertainty over post-election policy; Chinese growth improves on the back of new stimulus measures
US
The US economic growth is slowing at a gradual pace with uncertainty ahead of the presidential election on November 5. In 3Q24, US GDP grew by 2.8% QoQ annualized, slightly down from the previous quarter's 3.0%, mainly driven by consumer spending. September PCE price index increased at a slowest rate since March 2021. October consumer confidence rose to an 8-month high. However, the manufacturing PMI contracted sharply in October, hitting a 15-month low of 46.5. Although nonfarm payrolls rose only 12,000, the lowest in nearly 4-years, it was due largely to impacts of Hurricanes Helene and Milton as well as a strike by Boeing employees. The unemployment rate remained steady at 4.1%, while growth of hourly earnings edged up from 3.9% to 4.0% YoY.
The US economy is gradually slowing, though not to the point of recession, as reflected by continued expansion in GDP, the labor market, and the services sector. However, policy uncertainty following the US presidential election on November 5 remains a key factor influencing economic direction. According to Krungsri Research’s study, if Trump wins the election and implements planned tariffs on US imports from China and other countries, US and Chinese GDP would decrease from the baseline by –0.99% and -0.62%, respectively, especially in upstream industries heavily reliant on China. Additionally, this could impact middle to low-income households due to higher product costs. A rise in inflation could affect the Fed’s rate adjustment path next year, potentially leading to smaller or slower rate cuts than the market anticipates.
Japan
Political uncertainty and unexpectedly soft economic data may push the BOJ to delay rate hikes. Retail sales grew 0.5% YoY in September, the lowest since February 2022. Tokyo's CPI in October rose by 1.8% YoY, marking a 6-month low. At the October 30-31 meeting, the BOJ decided to maintain its policy rate at 0.25%, indicating the need to carefully assess global economic developments. It also highlighted the importance of monitoring risks to domestic economic recovery before making any further adjustments to its monetary policy.
Private consumption could benefit from wage rises and cooling inflation, but signs of growth remain unclear and weak. Key indicators include: (i) a -1.9% YoY contraction in August household spending; (ii) a contraction in October manufacturing PMI for 4 consecutive months and a fall in services PMI to its lowest level since February 2022; and (iii) a decline in exports for the first time in 10 months, by -1.7% YoY in September. Additionally, political uncertainty has arisen after Prime Minister Shigeru Ishiba's Liberal Democratic Party (LDP) lost its majority in the House of Representatives following the October 27 general election, holding 215 out of 465 seats. Given these factors and uncertainty over future US trade policy, we expect that the BOJ will adopt a wait-and-see approach, though a 25-bp rate hike is possible by January 2025 which would take the rate to 0.50%.
China
Chinese economy is showing clearer positive signs after the government ramped up stimulus measures, though it remains exposed to trade war risks. The official Manufacturing PMI rose from 49.8 in September to 50.1 in October, its first expansion in 6 months. The new orders component edged up from 49.9 to 50, while the new export orders continued to contract. The Non-Manufacturing PMI inched up from 50 to 50.2. Likewise, the survey by the private sector shows October Caixin Manufacturing PMI rose back to an expansion zone at 50.3 from a 15-month low of 49.3 in September.
The latest PMI data reflect a partial boost from National Day celebrations in early October and the new round of stimulus measures. The government is now considering CNY 10trn to address local government debt and to purchase excess housing stock over the next 3-5 years, as well as an extra CNY 1trn to stimulate consumption. These measures may be extended to deal with a potential escalation of the trade war. We assess that if the US implements Trump’s policy of a 60% tariff on all Chinese goods, China’s exports and GDP could drop by 5.8% and 0.25% from the baseline. If the US add a 20% tariff on its imports from other countries and China responds with similar tariffs on US goods, Chinese exports and GDP could decline from the baseline by as much as 7.2% and 0.6%, respectively.
Tourism and government stimulus expected to lift 4Q24 growth; Thai economy exposed to risk from future US trade policy
The Thai economic growth slowed in September relative to a month earlier on weaker exports and private consumption, but 4Q24 growth should break north of 3%. The Bank of Thailand reports that in September, economic growth softened on weaker exports (-2.1% MoM sa following strong performance a month earlier) and private consumption (-0.6%). In particular, spending on durable goods fell sharply on a drop-off in sales of automobiles, though expenditure on non- and semi-durable goods also weakened slightly. Manufacturing production also dropped (-1.4%) in September. Meanwhile, private investment remained flat (+0.1%). Revenue from foreign tourists improved (+4.4%) due to higher spending per trip, even though tourist numbers declined (-3.2%). Additionally, government spending expanded, driven by both regular expenses and public investments.
Although September economic growth slowed from the previous month, overall economy in 3Q24 continued to grow from the previous quarter. Krungsri Research estimates the Thai economy to expand by 0.6% QoQ sa or 2.3% YoY. The official data for 3Q24 will be released on November 18. The economic outlook for the final quarter of this year should improve, backed by: (i) the tourism high season, the positive effects of visa-free travel; (ii) the passing of the FY2025 annual budget, which will allow government spending to normalize and potentially boosting related private investment; (iii) exports, driven by demand for electronics and food products; and (iv) the stimulus effects of the THB 10,000 payments to low-income earners (disbursements total THB 145bn) and the rollout of the government’s new scheme to promote travel to 17 northern provinces following the recent flooding. The latter offers 50% discounts on spending for goods, services, and accommodation, up to THB400, with 10,000 rights available per person for a total of THB 4 mn, effective from November 1 through year-end. However, the widespread damage inflicted by the floods will restrict the positive effects of stimulus measures on economic activities. Overall, 4Q24 GDP growth is thus expected to exceed 3%.
Krungsri Research evaluates impact of US-China trade tensions on Thai economy across three scenarios based on Trump’s proposed tariffs. In the first scenario, where the US imposes 60% tariffs on Chinese goods, ASEAN may benefit from production relocation and substitute exports in some sectors (e.g., electronics). However, exports of many key products would decline from the baseline due to weaker demand from the US and China, as well as the global economic slowdown. In the second scenario, with 60% tariffs on Chinese goods and 20% tariffs on imports from other countries, the impact on the US economy could be more severe than China. ASEAN exports would be hit by linkages to the Chinese supply chains and the global slowdown. Although some production may relocate to ASEAN, the overall economic benefits for Thailand and ASEAN would be limited and less than those in Scenario 1. In the third scenario, if China retaliates with a 60% tariff on US imports, both countries would face heightened impacts, with the US losing exports in key industries (e.g., electronics and automotive). Meanwhile, Thailand might still see gains from export and production shifts in some sectors (e.g., electronics and automotive), but net positive impacts would be close to zero due to reduced demand from the US, China, and the global market.
US-China trade tensions are likely to persist regardless of the outcome of the US election on November 5, despite the different policies. In case that Trump wins and moves forward with stringent tariffs as announced, this could benefit some sectors of the US economy but would have a net negative impact on the US due to a surge in production costs and consumer prices, as well as a decline in investment and exports. Thus, it is expected that Trump may adjust his policy to be more targeted to mitigate the adverse effects. In the case of a Harris victory, tariffs would likely be focused on strategic goods, such as EVs and batteries. This approach would limit potential harm to the US, global economy, and Thailand, while ongoing production shifts from China to ASEAN could be an opportunity for some certain sectors of the Thai economy. However, there may be indirect effect as surging imports of Chinese low-cost goods, could harm domestic industries.
