US and Eurozone economies may face slower-than-anticipated growth; China expects stimulus measures to mitigate risks as trade war looms
US
Despite strong employment, the US faces downside risks from high interest rates and uncertainties surrounding Trump’s policies. In December, non-farm payrolls increased by 256,000, up from a 212,000 rise in November, while the unemployment rate dropped to 4.1% from 4.2%. This aligns with a rise in job openings to 8.09 million, the highest level in 5 months, reflecting the strength of the labor market. Also, the ISM services index rose from 52.1 to 54.1, exceeding expectations. However, consumer confidence index fell from 74 in December to 73.2 in January, signaling growing concerns about the economic outlook.
Although the US economy remains resilient, supporting the likelihood that the Fed will maintain its interest rates at the next meeting on January 28-29, economic risks are rising. These risks are reflected in: (i) a rise in corporate debt refinancing; (ii) the highest number of bankruptcy filings in 14 years; and (iii) increased delinquency rates, particularly in credit card and auto loans, reaching 10-year highs. These trends suggest that high interest rates may increasingly impact consumption and investment. Additionally, escalating trade tensions under Trump could further pressure the economy. Given these factors, Krungsri Research projects the US policy rates to be cut by an additional 75bps to a range of 3.50-3.75% at end-2025, aligning with the growing downside risks.
Eurozone
The Eurozone economy continues to struggle with high energy costs and political risk in Germany and France. In December, Eurozone’s Services PMI returned to growth, rising from 49.5 in November to 51.6. However, the Manufacturing PMI remained in contraction for the third consecutive month, dropping to a 3-month low of 45.1. Meanwhile, headline inflation rose from 2.2% to 2.4% YoY, while core inflation held steady at 2.4%, reflecting lingering inflationary pressures. Additionally, Ukraine has ceased transporting Russian gas to European customers via its pipeline network following the expiration of a pre-war transit agreement at the end of 2024.
The Eurozone faces several risks that could undermine its recovery in 2025, including a prolonged contraction in the manufacturing sector, persistently low business confidence, elevated trade and geopolitical tensions, and political risk in Germany and France, which together contribute over 41% of the EU's GDP. Despite Europe’s gas reserves exceeding 90%, the shift to non-Russian energy sources has led to higher energy costs, eroding the region’s competitiveness, particularly in key industries such as automotive and chemicals. Given the fragile economic outlook and mounting downside risks, Krungsri Research anticipates that the European Central Bank (ECB) will likely reduce its policy rate by 100bps to 2.00% by 2025 to prevent a sharp economic slowdown.
China
A new round of stimulus measures is expected to help support the economy, but China continues to face challenges from both internal and external risks. The official and Caixin PMIs showed the manufacturing slowing in December, despite growing new orders. The non-manufacturing PMIs continued to expand. Headline inflation remained low in December at just 0.1% YoY, its weakest in 9 months, while producer inflation slightly improved from -2.5% to -2.3%. Meanwhile, new home sales by the top 100 developers began to stabilize at 0% YoY in December, compared to -6.9% in November.
China is still struggling with excess supply and weak consumption. However, government stimulus measures have helped ease these challenges and provided some economic support, especially the trade-in program for electrical appliances and cars. In 2025, the government plans to extend this program to include smartphones and tablets, kitchen appliances, renewable energy cars, and air conditioners. In addition, the central bank announced soft loans for businesses to upgrade their machinery and equipment. These measures are expected to improve consumption and investment in 1H25 and mitigate the impacts of potentially worsening trade tensions in 2025.
Cash handouts provide only a temporary boost to consumption; future investment inflows face more challenges
Economic indicators showed a deceleration in domestic spending in November. The Bank of Thailand (BOT) reported that the economy slowed down in December, with private consumption down -0.4% MoM sa following the lift given by government’s cash handouts a month earlier. This slowdown particularly affected spending on non-durable goods. Also, private investment contracted by -1.8%, led by lower investment in construction and plant & machinery. However, seasonally adjusted exports (excluding gold) expanded by 3.0%, driven primarily by exports of automobile and processed agricultural products. Meanwhile, the tourism sector saw an increase in the number of international visitors from India, Japan, and China, but overall tourism revenue was affected by a decline in Russian tourists who spent a lot.
Domestic spending in late 2024 showed a clear slowdown, reflecting the diminishing positive impact of the government’s THB 10,000 cash handouts to around 14 million vulnerable people, which began in late September last year. In 1Q25, the government introduced measures to stimulate spending, including personal income tax deductions under the Easy-E-Receipt program (up to THB 50,000 per person), effective from January 16 to February 28. Additionally, the government plans to transfer THB 10,000 to approximately 4 million elderly individuals registered through a government application, with the disbursement expected by late January. These measures are anticipated to provide short-term support for private consumption amidst a slow recovery in consumer confidence and a high level of household debts. For 2025, Krungsri Research expected private consumption growth to decelerate to 3.0% from an estimated 4.8% in 2024.
Investment is still struggling with a slow recovery in overall confidence and challenges from the Global Minimum Tax enforced earlier this year. Data from the BOT showed that the Business Sentiment Index (BSI) slipped from 49.3 in November to 48.4 in December and fell below 50 for 15 consecutive months. This was largely due to a declining confidence in the manufacturing sector, which has been in the contractionary zone since mid-2024. Meanwhile, the confidence in the non-manufacturing sector has been lifted above 50 points largely due to a recovery in the tourism sector.
The prolonged period of business confidence below 50 reflects ongoing uncertainty among businesses, especially in manufacturing, which faces structural challenges such as declining competitiveness. As a result, private investment in the past year has been underwhelming. This year, we expected private investment to expand by 2.9% due to (i) an uptick in government spending, especially with regard to the 26.5% increase in the capital budget for fiscal year 2025, which will then help induce related private-sector investments; (ii) investment promotion applications to the Board of Investment (BOI) in the first nine months of 2024 totaled over THB 720 bn, the highest in a decade; and (iii) the recent data from the Eastern Economic Corridor (EEC) indicates that 12 investors, with a combined investment value of over THB 150 bn, are planning to invest in Thailand this year, mainly in sectors related to data centers and semiconductors. However, at the beginning of 2025, the Thai government implemented the Global Minimum Tax (GMT), a minimum tax rate of 15% for multinational enterprises (MNEs), with consolidated annual revenues of at least EUR 750 million, effective from accounting periods starting on or after January 1, 2025. The measure may prompt multinational corporations to reassess their investment decisions. This also pose a challenge for the country that has relied on low tax rates to attract foreign investment.
