Monthly Economic Bulletin (January 2025)

Global: Protectionism, Risk Prevention, and Precarious Recovery

Global economy expected to see sub-par growth again in 2025 amid structural headwinds; there is downside risk amid policy uncertainty

Global manufacturing weakness offset by an expanding services sector; key themes for 2025 are policy uncertainty and stalled disinflation, complicating monetary policy decision

US: Heading for a soft landing amid lagged impact of high interest rates; Trump’s policies could heighten risks to medium-term growth and stability, complicating Fed’s rate move

The US would suffer more from Trump’s tariff proposal than China and Rest of World

Eurozone: High energy costs, still-high interest rates, and political risks continue to hinder economic recovery, paving the way for further interest rate cuts

Japan: Services sector and government measures drive recovery while rising inflation may allow the BOJ to deliver more interest rate hikes in 2025

China: Broader targeted stimuli could help support the domestic economy, but risks from rising trade tensions and structural weaknesses would continue to cap growth

Thailand: Recovery in key economic drivers faces challenges; stimulus measures only provide temporary boost

• 2025: Year of normalization and a temporary rebound amid structural headwinds and policy uncertainty.

• Normalized public spending and continued momentum will help support economic growth.

• Private investment growth is likely to recover in 2025 but limited by weak sentiment and challenges in attracting FDI.

• Tourism remains a key driver of economic growth, with foreign tourist arrivals expected to reach pre-pandemic levels in 2025. Safety fears become a current concern for Chinese tourists, although this is expected to be only temporary.

• Exports are expected to grow modestly supported by recovering demand for electronic products but would slow down from last year due to structural problems and escalating US-China trade tensions.

• Private consumption would see a temporary boost from stimulus measures. Consumption growth would slow to 3% amid several headwinds.

• Headline inflation should remain low this year, close to the lower end of the BOT’s target range.

• We expect a 25bps cut in policy rate in 2025 to support economic recovery and alleviate tight financial conditions.

Krungsri Research Forecasts for 2024-2025

2025: Year of normalization and a temporary rebound amid structural headwinds and policy uncertainty

Normalized public spending and continued momentum will support economic growth

Disbursement of FY2025 budget should return to normal and be a key driver of economic growth in 2025. In the first quarter of FY2025 (October-December 2024), disbursement of the current budget had increased by 20.7% YoY to THB1.04 trn or 38.3% of the budget. Disbursement of the capital budget had surged 145.2% YoY to THB 0.13 trn or 13.4% of the annual capital budget. The cabinet recently approved FY2026 budget framework, setting total budget expenditures at THB3.78 trn, a 0.7%  increase from FY2025. The FY2026 budget will register THB 0.86 trn deficit or -4.3% of GDP, signaling continued reliance on fiscal stimulus to support economic activity while managing public finances.

Private investment growth should positive in 2025 but limited by weak sentiment and challenges in attracting FDI

Private investment is expected to rebound in 2025, growing by 2.9% after a -1.5% contraction in 2024, driven by several factors: (i) accelerating public investments should induce private investment, (ii) a 35% increase in BOI-approvals for incentives to a 10-year high of over THB 1.14 trn, and (iii) new investment commitment from 12 companies in the Eastern Economic Corridor (EEC), exceeding THB150 bn, mainly in data centers and the semiconductor industry. However, Thailand faces a new challenge with the 15% Global Minimum Tax, effective January 1, 2025, for multinational enterprises (MNEs) with annual revenues of over EUR750 m. The measure might prompt MNEs to review their investment decisions. This also poses a challenge for the country that has relied on low tax rates to attract foreign investment.

​Global Minimum Tax (effective Jan 1, 2025): A challenge for attracting foreign investment

Minimum tax rate of 15% for MNEs with consolidated annual revenues of at least EUR 750 m (approx. THB 26 bn) in 2 out of the last 4 accounting periods

Tourism remains a key economic driver, with foreign tourist arrivals projected to reach pre-pandemic level in 2025; safety fears become a current concern for Chinese tourists

In 2025, foreign tourist arrivals are expected to return to pre-Covid level of 40 m from 35.5 m in 2024. Revenue from international tourists is projected to increase from THB 1.67 trn in  2024 to THB 1.88 trn in 2025, a notch below pre-Covid level (98% of the pre-pandemic revenue). Supporting factors include visa-free schemes, rising demand, expansion of airline routes, and higher flight frequencies. In 2024, tourist arrivals from China was slower than expected at only 6.7 m or 61% of pre-Covid levels, while arrivals from Malaysia, India and Russia have exceeded pre-pandemic levels. Following reports of the abduction of a Chinese actor in Thailand and his subsequent rescue early this year have raised safety fears for some Chinese tourists during Lunar New Year holidays, although this concern is expected to be temporary.

Exports should grow modestly amid structural challenges in manufacturing sector and rising trade tensions

Exports might benefit from recovering demand for electronic products but continue to face challenges from escalating US-China trade tensions

In the first 11 months of 2024, Thai exports grew 5.1% YoY led by agricultural products which expanded by 7.3% (including rubber and rice), agricultural industrial products (canned & processed seafood and pet food) which expanded by 3.9%, and industrial products (computers & components, rubber products, chemical products and electrical appliances) which expanded by 5.5%. However, exports of key industrial goods continued to contract, including cars & parts, integrated circuits, and plastic resin. Weak global manufacturing activity and the risk of escalating US-China trade tensions could weigh on Thai exports in 2025.

Trump’s tariff proposal: Gains would be concentrated in some export sectors, many industries would be hurt.

Private consumption to get temporary boost from stimulus measures;  growth may slow to 3% in 2025 amid several headwinds

In 1Q25, the government introduced measures to stimulate spending, including a personal income tax deduction under the Easy-E-Receipt program (eligible spending capped at 50,000 baht per person during  Jan 16 – Feb 28). It will also provide 10,000 baht per person cash handout to approximately 4 million senior citizens who register through the government app, with disbursements targeted in late January. These measures are expected to provide a temporary boost to private consumption amid the slow recovery in consumer confidence, weaker farm income, and high household debt levels. In 2025, we project private consumption growth would decelerate to 3% from estimated 4.8% in 2024.

Thai household debt remained high at 89% of GDP in 3Q24; Khun Soo, Rao Chuay program to help reduce debt burden

Thailand's household debt grew only 0.7% YoY in 3Q24. Despite slowing from a peak of 95.5% in 1Q21 and 89.8% in 2Q24, household debt-to-GDP ratio remained high at 89.0% in 3Q24 . Auto loans fell (-7.9% YoY), while growth of real estate loans and credit card & personal loans continued to decelerate. On debt quality, non-performing loans (NPLs) at Thai commercial banks stood at THB 519.1 bn in 3Q24 and rising to 2.88% of total loans from 2.66% at end-2023. NPLs for credit card segment rose from 3.57% of total loans at end- 2023 to 4.61% at end-3Q24. Real estate NPLs rose from 3.34% to 3.82% in the same period. Auto loans NPLs only inched up from 2.13% to 2.30% but could accelerate in the next period; this is reflected in the Significant Increase in Credit Risk (SICR or Stage 2) group, which reached a new high of 15.7% of total loans at end-3Q24 from 14.39% at end-2023. However, household debt is likely to gradually drop in the next period following the launch of Khun Soo, Rao Chuay program.

Thailand introduces new measures to ease household debt burden for vulnerable groups

Thailand has launched a household debt relief program aimed at helping vulnerable groups, but it will take time to resolve the problem. The authorities have introduced the ‘Khun Soo, Rao Chuay’ or ‘You Fight, We Help’  household debt relief program to assist vulnerable groups, featuring two main schemes: (i) ‘Pay direct, keep your assets’ scheme is offered to those with outstanding home, automobile and small business loans; and (ii) ‘Pay, close, complete’ scheme to those with NPLs up to THB 5,000 each (see table for details). Registration for the program will open between 12 December 2024, and 28 February 2025. The program targets 1.9 million borrowers with to total debt of THB 890 billion, representing 5.5% of total household debt. While it aims to ease financial pressure and address rising NPL risks, especially in auto loans, Thailand needs long-term solutions such as income growth and productivity improvements to address the structural issues of high household debt which is now at nearly 90% of GDP.  

Headline inflation should remain low in 2025, near lower-end of target range

Policy interest rate: A 25bps cut to 2.00% is possible to support economic recovery and alleviate tight financial conditions

Key factors in 2025: Growth to pick up following normalized public spending, stimulus measures, and tourism recovery; but there are still structural challenges and external risks