Risks to global trade are increasing as Trump prepares to implement the Reciprocal Tariffs policy.
US
Higher-than-expected US inflation impacts the Fed's prospects for a rate cut in March. In January, headline inflation rose to 3.0% YoY from 2.9% in the previous month, while core inflation increased to 3.3% from 3.2% in the previous month.
Although the accelerating inflation reduces the likelihood of a rate cut in the March meeting, the economy continues to face pressure from rising debt refinancing and higher delinquency rate of consumer loans. Recently, Donald Trump signed an order to study the implementation of reciprocal tariffs on various countries, considering both tariff and non-tariff measures. This move could escalate trade tensions and heighten risks to the economy. The study is expected to be completed by April 1. Additionally, anti-immigration policies pose further risks to the labor market and economic growth. Given these factors, Krungsri Research expects that the Fed may cut interest rates by 50–75bps this year to mitigate potential economic slowdowns.
Eurozone
Fragile Eurozone economy amid political and trade war risks, supporting ECB rate cuts. The Eurozone economy has slowed, with GDP growth stagnated 0% QoQ in 4Q24 from 0.4% in previous quarter. Meanwhile, industrial production contracted further, dropping from -1.8% in November to -2.0% YoY in December.
Eurozone’s economy continues to face uncertainty due to high energy prices, political risks in Germany and France, and weakening economic confidence. Additionally, the US President Donald Trump's Reciprocal Tariffs plan is expected to have a major impact on the European Union—ranking among the most affected globally after India and Brazil. This policy also reduces the likelihood of trade negotiations, as the EU and other countries lack the fiscal flexibility to lower their own tariff base. Given these factors, Krungsri Research anticipates that the European Central Bank (ECB) will likely cut interest rates to 2.00% this year.
China
China’s real estate sector remains fragile, while headline inflation remains low. New home sales by the top 100 property developers contracted slightly by 3.2% YoY in January, down from 0% in December. Recently, the government has been considering providing financial support of approximately CNY 50 bn to Vanke. Meanwhile, headline inflation remains low at 0.5% YoY, rising from 0.1% in December. This reflects a slight improvement in domestic demand, though it remains weak.
The real estate sector has improved gradually, but debt and liquidity problems continue to pose significant pressures. Many property developers are facing a wind-up petition. Also, total property sales in 2024 remain 45.7% below their peak in 2021 (as shown in the figure). Overall, China’s economy continues to struggle with excess supply in the manufacturing and real estate sectors, along with structural challenges. Going forward, China still needs to rely on stimulus measures to sustain economic growth amid escalating trade tensions.
2024 GDP grew by just 2.5%, and Krungsri Research plans to revise down 2025 growth forecast.
4Q24 GDP grew 3.2% YoY but saw only a slight increase on a quarter-on-quarter basis despite large stimulus measures. The NESDC reported that Thailand's economy expanded by 3.2% in 4Q24, lower than markets' expectations of 3.9%. Seasonally adjusted, GDP grew only 0.4% QoQ, down from 1.2% in 3Q24. For the full year 2024, the economic growth remained low at 2.5%, compared to 2.0% in 2023. The NESDC has maintained 2025 GDP growth forecast at 2.8% (range 2.3-3.3%).
The Thai economy saw a slower-than-expected recovery in 4Q24, with weakening momentum reflected by: (i) steady growth of private consumption despite a cash handout of over THB 140 bn to vulnerable groups since late September; (ii) a further contraction of private investment although public investment accelerated, which suggest a lack of crowding-in effect; and (iii) Surprised export growth failing to boost private investment or manufacturing production.
For the 2025 outlook, Krungsri Research plans to lower its GDP forecast from 2.9% due to: (i) weak domestic demand, including private consumption and investment; (ii) limited impact of stimulus measures (Phase 2 at just THB 30 bn, with THB 157 bn remaining for the Digital Wallet program this year); (iii) potential shortfall in foreign tourist arrivals from the projected 40 mn, due to slow recovery of Chinese tourists; and (iv) risks from US tariff hikes that could affect Thailand's trade and exports.
These headwinds and downside risks open the door for a potential rate cut at the MPC’s meeting on February 26. If the rate cut does not materialize this month, it is likely to take place in April, once more details about US reciprocal tariffs become available.
Consumer confidence recovers but remains low. Authorities extend support measures for retail debtors to alleviate household debt problem. The Consumer Confidence Index (CCI) in January continued to rise for the fourth consecutive month, reaching an eight-month high of 59.0, up from 57.9 in December. The increase was supported by government stimulus measures and improvements in domestic tourism. However, consumers remain cautious about job opportunities, future income, and still-high living costs.
Although the CCI has been improving, it remains relatively low compared to the pre-COVID-19 average (which stood at 75.5 in 2019). The main support comes from short-term stimulus measures, particularly the THB 10,000 cash handout—Phase 1 targeting vulnerable groups (around 14 mn people) and Phase 2 for the elderly (over 3 mn people).
For outlook of domestic spending, Krungsri Research expects 2025 private consumption growth to slow down from previous years, partly due to pressure from real wages, which remain low only 3.2% higher than the 2019 pre-COVID average. Additionally, the high level of household debt continues to impact purchasing power. Regarding debt relief measures for individual borrowers under the "Khun Soo, Rao Chuay" program, its effect should be closely monitored. Recently, the program has been extended to include non-bank customers, with the registration deadline now extended until the end of April.
