US and Eurozone show signs of a slowdown in 2H25 amid tariff impacts; China’s property sector continues to pressure the economy.
US
US economy has decelerated more pronounced, but Fed signals no urgency for July rate cut. Consumer spending fell -0.1% MoM in May, with a sharp fall in goods spending (-0.8%). Spending on services rose just 0.1%, the slowest since late 2020. Meanwhile, the headline PCE price index rose 2.3% YoY, slightly up from 2.2% in April. In addition, President Trump stated that he may extend the suspension of retaliatory tariffs on trading partners, which is currently set to expire on July 9. Meanwhile, China has reached an agreement to expedite rare earth shipments to the US.
Despite attempts to ease trade tensions, uncertainty about the impact of US tariff hikes on inflation outlook suggests that the Fed will likely hold its policy rates steady at its July meeting. Nonetheless, the US economy continues to face rising risks of a slowdown in 2H25 due to more aggressive trade policies and still-tight financial conditions. For these reasons, the Fed is expected to cut interest rates 2–3 times over the rest of this year.
Eurozone
With inflation dipping below 2%, ECB may have more room to cut policy rates further in 2H25. In June, Flash Manufacturing PMI came in at 49.4, staying in the contraction zone for the third straight year. The services PMI, however, returned to an expansion territory at 50, up from 49.7 in the previous month. Meanwhile, ECB President Christine Lagarde urged the European Parliament to accelerate legislation to support the Digital Euro, citing the need to preserve monetary sovereignty amid US developments on stablecoins.
Although the risk of recession remains low amid a strong labor market, overall economic growth is expected to remain weak this year due to (i) external headwinds from US tariff hikes and ongoing geopolitical uncertainty in the Middle East and (ii) internal headwinds from structural problems—including an aging population and high public debt. Given this backdrop, along with inflation falling below the 2% target, Krungsri Research expects the ECB to lower its policy rate by another 1–2 times, to a range of 1.50–1.75% by the end of this year.
China
China’s real estate sector remains weak, while government is stimulating consumption to support the overall economy. New home sales by the top 100 developers continued to contract (-8.6% YoY in May vs -8.7% in April). The average prices of new and second-hand homes across 70 major cities have fallen for over three straight years. Government revenue from land sales also fell sharply by -14.6%, the worst in a decade.
Despite some improvement, the real estate sector has yet to show clear signs of recovery, partly reflecting that previous measures may be insufficient to sustain its recovery momentum. Demand is expected to decline over the long term, in line with the population downturn that began in 2022. Meanwhile, with excess supply in the real estate and manufacturing sectors, impacts from the trade war, and geopolitical tensions, the government has continued its efforts to stimulate consumption to support economic growth. Recently, 19 additional guidelines were issued, focusing on boosting purchasing power and providing financial support to service businesses (e.g., retail trade, hotels, restaurants, sports, entertainment, and tourism).
Krungsri Research expects 1–2 more rate cuts this year as the economy shows increasing signs of weakness under domestic and external pressures.
MPC holds policy rate at 1.75%, emphasizing timing and effectiveness of monetary policy. The Monetary Policy Committee (MPC) meeting on June 25 voted 6 to 1 to maintain the policy interest rate at 1.75%, citing that previous rate cuts had helped cushion risks to some extent. The committee also revised its forecast for Thailand’s economic growth in 2025, raising it to 2.3% from the earlier projection of 2.0%, partly due to stronger-than-expected performance in the manufacturing and export sectors during the first half of the year. However, risks of a slowdown remain for the second half. For 2026, the GDP growth forecast was slightly lowered to 1.7% from the previous estimate of 1.8%.
The decision to maintain the policy rate at the latest meeting may reflect the need to preserve the limited policy space, after rate cuts in February and April. The MPC emphasized “the importance of timing and the effectiveness of monetary policy amid a highly uncertain environment and constrained policy tools.” Krungsri Research expects that the MPC may cut the policy interest rate by another 1–2 times during the remaining meetings of the year due to the following factors: (i) Growing signs of a deeper economic slowdown, amid rising pressures from domestic political uncertainty and US trade policies. The BOT projected GDP growth of only 0.1% QoQ in the second half of the year. (ii) There are signs of tight financial conditions, as reflected in the continued contraction of commercial bank lending, along with inflation remaining below the 1-3% target range (with the BOT forecasting it at only 0.5%). (iii) The MPC also stated that it is “ready to adjust monetary policy in line with economic trends and evolving risks.” These factors collectively support the likelihood of further monetary easing in 2H25.
Domestic political uncertainty clouds FY2026 budget approval despite THB 115 bn stimulus package. The cabinet meeting on June 24 approved a total economic stimulus package worth THB 115,375 mn (from a central budget of THB 157,000 mn). The package includes four key areas: (i) infrastructure development, (ii) tourism promotion, (iii) export impact mitigation, productivity enhancement, and digital transformation, and (iv) community-based and other economic initiatives. The government initially estimates that this stimulus package will boost economic growth by an additional 0.4%.
While the stimulus package is a positive short-term signal for the economy, concerns remain over its implementation efficiency—particularly the lack of clarity regarding disbursement mechanisms and the timing of when funds will be injected into the real economy. At the same time, Thailand’s economy is facing increasing pressure from rising domestic political uncertainty, which could undermine the government’s ability to implement key policies—especially the drafting and passage of the FY2026 Budget Act. If the budget legislation fails to pass within the required timeframe, it may weaken investor and public confidence and disrupt the momentum of government spending. Generally, the budget bill is expected to be approved by August or early September. This is particularly concerning for new public investment projects, which play a crucial role in driving medium- to long-term economic growth.
