Thai and Global Economics
The global economy faces increased uncertainty as Trump plans to escalate trade war. Thailand keeps eye on MPC decision this week.
US
Trump plans to escalate trade war amid signs of US economic slowdown. Minutes from the FOMC's January 28-29 meeting stated that Fed officials remain concerned about persistently high inflation. They expected President Donald Trump's tariffs could hinder efforts to bring inflation down to the 2% target. Also, the Fed reaffirmed it would not cut interest rates further until clear signs of easing inflation emerge. This stance reduces the likelihood of a rate cut at the upcoming meeting in March.
The trade war is expected to intensify as President Trump has prepared to implement Reciprocal Tariffs and 25% tariffs on automobiles, pharmaceuticals and chips in April. If these tariffs are imposed on all countries, they could increase risks to the US economy. Meanwhile, the Flash composite PMI in the US fell a 17-month low of 50.4 in February. Given signs of economic slowdown coupled with mounting pressure from rising debt refinancing, Krungsri Research anticipates that the Fed may cut interest rates by 50-75 bps this year to mitigate economic risks in the period ahead.
China
China’s investment remains sluggish amid various headwinds. Total aggregate financing and outstanding loans to the real economy in January grew at historic lows of just 8% and 7.2% YoY, respectively. In 2024, Foreign Direct Investment (FDI) hit its lowest level in over 30 years at only USD 4.5 bn.
This data suggests that China's overall investment remains weak. Meanwhile, the government has pledged to foreign investors to remove market access restrictions and ensure equal treatment for products made by Chinese and foreign companies. Additionally, the formal meeting between Xi Jinping and representatives from major Chinese technology companies and unicorns signals that regulation and control over the private sector in recent years may become more relaxed. However, an investment recovery may be slow due to still-weak domestic demand, excess supply in the manufacturing and real estate sectors, and geopolitical tensions, especially the US-China trade and technology wars.
Thailand
Fiscal stimulus has limited effectiveness, while easing monetary policy may help support momentum of economic recovery. The NESDC reported that four key economic projects are expected to inject THB260 bn into the economy in 1H25. These projects include: (i) a THB10,000 cash transfers for eligible seniors with a budget of THB28.25 bn; (ii) a spending stimulus via tax deductions (Easy E-Receipt program) expected to circulate over THB70 bn; (iii) the Community Development (SML) project allocated THB11.9 bn from FY2025 budget; and (iv) the Digital Wallet scheme or the third phase of THB10,000 payment to Thai people anticipated in 2Q25 with an estimated budget of THB160 bn.
Although over THB260 bn (1.4% of GDP) would be injected into the economy in 1H25, Krungsri Research estimates that the economic impact of the programs may be limited. For instance, despite THB10,000 cash handout program for vulnerable groups worth THB140 bn (0.8% of GDP), starting in late September 2024, private consumption grew by only +3.4% year-on-year in 4Q24, close to +3.3% in 3Q24, and sharply slowing from +6.6% in 1Q24. On a quarter-on-quarter basis, private consumption growth decelerated to just +0.5% in 4Q24 from +0.6% in 3Q24 and +1.3% in 1Q24. A further deceleration is also expected. Therefore, relying solely on fiscal measures may not be sufficient and a further monetary easing should be necessary. Amid sluggish economic growth, weak consumption, low investment growth, and a 15-year low in commercial bank credit (-0.4%), the Monetary Policy Committee (MPC) is expected to cut the policy rate by 25bps to 2% at its February 26 meeting. If the cut does not materialize this month, it is likely to take place in April, once more details about US tariffs become available.