US and China reach a temporary 90-day trade agreement, but economic impact of tariffs likely to intensify in period ahead
US
US and China temporarily cut tariffs. Fed is likely to awaits clarity on economic effects of Trump’s policies. The US central bank (Fed) held its policy interest rate steady at 4.25%–4.50%, as expected, signaling it is in no hurry to cut rates. The Fed Chair emphasized that the US economy and labor market remain solid, while Trump’s economic policies are expected to drive inflation higher in the future.
Recently, the US and China reached a temporary trade agreement, with both sides agreeing to reduce tariffs by 115% for 90 days. This means US import tariffs on Chinese goods were lowered from 145% to 30%, while China cut tariffs on US imports from 125% to 10%. This movement may reduce risks of US recession and stagflation. However, as long as universal tariffs -- with a minimum of 10% tariff on all countries -- remain in place, negative impacts on the US and global economies are expected to become more apparent in the near future. This also raises the risk of economic slowdown. Krungsri Research expects the Fed to maintain a "wait-and-see" approach to assess the effects of Trump’s policies on economic and inflation trends before proceeding with further interest rate cuts.
Eurozone
Eurozone economy remains fragile amid pressure from US trade policy, likely prompting ECB to continue its rate-cutting cycle. In April, headline inflation remained steady at 2.2% YoY, while core inflation rose from an over 3-year low of 2.4% in March to 2.7%. Meanwhile, PMI continues to reflect a sluggish economy with the manufacturing sector staying in a contraction zone at 49 and the services sector slowing to 50.1 from 51 in the previous month.
Trade tensions are increasingly affecting Eurozone economy. The US is considering tariffs on a wide range of imports from the European Union (EU), including lumber, pharmaceuticals, semiconductors, critical minerals, and trucks. These measures would cover an additional EUR 170 bn worth of EU goods, representing 97% of EU exports to the US. While the EU is preparing a proposal for negotiations, it has announced readiness to retaliate by imposing additional tariffs on US imports (valued at around EUR 100 bn) if negotiations fail. Given the increasingly evident slowdown in the Eurozone, Krungsri Research expects the European Central Bank (ECB) to gradually lower its policy rate from the current 2.25% to 1.50% by the end of 2025.
China
China rolls out a new round of monetary easing while still retaining ample policy space to deal with the trade war. China has cut its 7-day reverse repurchase rate by 10bps, effective May 8, and lowered the required reserve ratio (RRR) by 50bps, effective May 15, which is expected to inject around CNY 1 trn into the economy. The government is also considering restricting the pre-sale of unfinished houses.
China has attempted to improve liquidity in the financial system amid trade war pressures. In April, Chinese exports to the US fell by 21% YoY. Although export figures may rebound following temporary US-China tariff cuts, prolonged negotiations and tariffs that remain higher than their original levels are expected to impact the economy. Notably, China still has considerable fiscal flexibility. Specifically, if the government can boost retail sales growth from 3.5% in 2024 to between 5.5% and 7%, it could offset 26% to 45% of the total exports to the US. Additionally, this does not yet account for gains in other markets—for instance, China’s exports to ASEAN rose by 20.8% in April.
Tourism momentum weakens. Inflation expected to fall below target in 2Q25.
Tourism recovery shows signs of weakness, limiting its role in driving economic growth this year. In April, the number of foreign tourist arrivals to Thailand fell by 7.6% YoY to 2,547,116, led by tourists from Malaysia (362,636), China (317,213), India (206,286), Russia (155,314), and the UK (110,231). For the first four months of 2025, total foreign tourists declined by 0.3% YoY to 12,096,120.
The recovery of Thailand’s tourism sector has weakened, particularly in key markets like China, which saw a sharp decline. A major factor weighing on the rebound is safety concerns, which have significantly affected tourist confidence—especially among Asian markets such as China, where sensitivity to such issues is high.
In the first four months of this year, the number of Chinese tourists dropped by 29.9% YoY to 1.65 mn. In April alone, Chinese tourist arrivals plummeted as much as 46.7%. YoY. Moreover, regional competitors—particularly Vietnam, Cambodia, and Japan—have actively enhanced their tourism capabilities and capitalized on their strengths in pricing, novelty, and favorable exchange rates to attract budget-conscious travelers, who were once Thailand’s key target group. Recently, Thailand has seen a significant loss in market share, especially among Chinese tourists who are increasingly turning to alternative destinations. In the first quarter of this year, Japan recorded a 23.1% YoY increase in total foreign tourist arrivals, reaching 10.5 mn, compared to Thailand’s 9.55 mn. Notably, the number of Chinese tourists visiting Japan surged by 78% (or 9% above pre-COVID levels) to 2.36 mn, while only 1.33 mn Chinese tourists visited Thailand during the same period—a 24.2% decline.
Headline inflation is likely to turn negative in 2Q25 after April marks first decline in 13 months —since March 2024—at -0.22% YoY, compared to 0.84% in the previous month. The main cause was a decline in energy prices, particularly fuel, which dropped in line with global crude oil market trends. Additionally, prices of certain food items, such as fresh vegetables and eggs, also fell. Meanwhile, core inflation (excluding raw food and energy) in April stood at 0.98%, up from 0.86% in the previous month. For the first four months of 2025, average headline and core inflation rates were 0.75% and 0.91%, respectively.
Krungsri Research estimates that headline inflation in the second quarter of this year is likely to turn negative, compared to an average inflation rate of 1.08% YoY in the first quarter—close to the lower bound of the 1–3% target range. This is due to: (i) a decline in domestic fuel prices in line with global crude oil prices, which are expected to be lower than last year due to the global economic slowdown; (ii) government measures to ease energy costs, such as the reduction of electricity cost for the May–August period and the freeze on LPG prices; and (iii) more favorable weather conditions compared to last year, which have increased the supply of certain agricultural products, thereby easing price pressures in the fresh food category. Overall, the low level of inflation may provide the central bank with additional policy space to ease monetary conditions, supporting the economic recovery in the face of mounting downside risks to growth.
