Trade policy uncertainty puts more pressure on economies in the US, Europe, China, and around the world.
US
US Fed holds interest rates as expected, while Trump plans to expand tariffs on commodities. The Federal Reserve (Fed) unanimously voted to keep its policy rate at 4.25-4.50%. Fed Chair Jerome Powell emphasized there was no immediate need to lower rates, as the economy remained resilient. However, 4Q24 GDP growth slowed down to 2.3% QoQ annualized from 3.1% in the previous quarter.
Although the economy remains resilient, private sector’s debt refinancing is expected to surge this year and employment may decline following stricter immigration policy. Furthermore, trade tensions are escalating as Mr. Trump has threatened to impose tariffs on commodity and energy sector in addition to the latest increase in tariffs on imports from China, Canada, and Mexico. Considering these risks to US economic growth, along with oil-drilling policy to ease inflation, Krungsri Research estimates that the Fed may cut interest rates by another 75bps to 3.50-3.75% by end-2025.
Eurozone
Eurozone economy faces fragile recovery amid internal and external headwinds. The European Central Bank (ECB) has cut its policy interest rate by 25bps to 2.75%, citing continued disinflation and expectation that inflation will return to its 2% target by year-end. Meanwhile, Eurozone GDP growth stalled at 0% QoQ in 4Q24, down from +0.4% in the previous quarter. 4Q24 GDP in Germany and France, the region’s two largest economies, contracted by -0.2% and -0.1%, respectively.
Looking ahead, the Eurozone economy is expected to remain weak amid a prolonged contraction in manufacturing sector, still-low business confidence, and ongoing geopolitical and trade tensions. Additionally, political uncertainty in Germany and France continues to cloud policymaking, weighing on the region’s growth outlook. Hence, we anticipate that the ECB will lower interest rates to 2.00% this year, in line with expectations that inflation will soften to 2.00% by end-2025.
China
Chinese growth still depends on stimulus measures, while Lunar New Year spending provides some boost. In January, officials reported a slowdown in the Manufacturing PMI, New Orders Index, and Non-Manufacturing PMI (see chart). Meanwhile, industrial profit growth rebounded to 11% YoY in December from -7.3% in November. However, industrial profits for 2024 still contracted by 3.3%, marking a third consecutive year of decline.
The recent PMI slowdown was partly due to temporary shutdowns ahead of the Chinese New Year, with the positive effects expected to become visible in February. Meanwhile, the improvement in industrial profits late last year was likely driven by large-scale stimulus measures. Furthermore, the launch of DeepSeek demonstrates China's technological advancements, shaking the global AI industry. However, US-China trade and technology wars are expected to escalate, putting pressure on Chinese and global economies, particularly impacts from the potential influx of Chinese low-cost goods and technology.
Thailand's economy early this year still driven by tourism. FPO estimates 4Q24 GDP growth may be less than expected.
The tourism sector faces challenges but remains a key economic driver early this year. The Bank of Thailand (BOT) reported that overall economic indicators in 4Q24 improved from the previous quarter, driven by the tourism sector and continued growth in public investment. Meanwhile, exports excluding gold remained high and close to the previous quarter, supported by technology product exports. Private consumption remained stable despite the benefits of the THB 10,000 cash handout in Phase 1, with a contraction in automobile sales. Private investment declined in both the vehicle and construction sectors.
Krungsri Research assesses that the economy in early 2025 will continue to be supported by growth in the tourism sector. Concerns about the safety of Chinese tourists may have a short-term impact and the overall tourism outlook remains positive. During January 1-26, there were 3.02 million foreign tourists visiting Thailand (+19.3% YoY), generating THB 150.65 bn in revenue, led by Chinese tourists (532,853 people). The economic stimulus measures in 1Q25, such as the Easy-E-Receipt program and the THB 10,000 cash handout (Phase 2) with only THB 30 bn budget, may not yield significant positive effects. Under the cash handout in Phase 1 with total budget of as much as THB 140 bn, starting from late September, domestic spending remained flat, as reflected in the Private Consumption Index (-0.1% QoQ in 4Q24), indicating weak consumer purchasing power.
The FPO maintains its 2025 GDP growth forecast at 3%, up from an estimated 2.5% in 2024. However, interest from debtors in the 'Khun Soo, Rao Chuay' measures remains below target. The Fiscal Policy Office (FPO) has lowered its 2024 GDP forecast from 2.7% to 2.5%, while maintaining its 2025 forecast at 3%, within a range of 2.5%-3.5%. Additionally, the government reported progress on the 'Khun Soo, Rao Chuay' program aimed at assisting retail debtors. However, only 25% of debtors have expressed interest in participating, out of a target of 2.1 million accounts, with 576,496 accounts registered as of January 28.
The FPO's downward revision of its 2024 economic forecast reflects weaker-than-expected momentum in the last quarter, mainly caused by a contraction in manufacturing production, particularly due to a decline in automotive production. The Manufacturing Production Index (MPI) in 4Q24 contracted by 2.0% YoY. Excluding the automotive industry, the MPI grew by 1.3%. To assess the economic growth momentum, we are waiting for the announcement of actual GDP figures from the NESDC on February 17. Regarding participation in the measures to assist retail debtors, the number of interested individuals remains significantly below the target, indicating that consumption growth this year may be limited due to pressure from high household debt. However, the progress of this project will be monitored further as the registration period ends on February 28.
