Uncertainty surrounding US tariff policy poses a risk to economic growth in 2H25; China remains under internal and external pressures
US
Trade policy uncertainty continues to weigh on US economic outlook and interest rate direction in 2H25. In June, US nonfarm payrolls rose by 147,000, up slightly from 144,000 in the previous month, while the unemployment rate edged down from 4.2% to 4.1%. President Donald Trump announced that his administration would begin sending formal letters to trading partners, outlining new unilateral tariff rates set to take effect from August 1.
Although the “Big, Beautiful Bill” has been passed, its benefits are expected to be skewed toward high-income earners, while lower-income groups may face cuts in social welfare programs. Its net positive impact on the broader economy appears limited. In addition, despite better-than-expected jobs data, more prominent signs of consumption slowdown amid heightened trade policy uncertainty, tight financial conditions, and high private-sector delinquency rates are expected to weigh further on the US economy. These headwinds could prompt the Fed to consider an additional 2–3 rate cuts in the second half of the year.
Eurozone
Eurozone inflation hovers near the 2% target amid a low-growth economy. In June, the manufacturing PMI remained in contraction territory at 49.5, slightly up from 49.4 in the previous month. Headline inflation was at 2.0% YoY, while core inflation held steady at 2.3%.
The risk of a recession in the eurozone remains low, thanks to resilient private consumption and a strong labor market, supported by easing inflation and lower interest rates. However, economic growth is expected to slow down from 1Q25’s 0.6% QoQ pace. Major headwinds include the expected increase in US tariffs on Europe’s goods from 1 August, ongoing geopolitical uncertainty in the Middle East, and structural pressures such as an aging population and elevated public debt. Given the still-low growth and inflation staying near the 2% target, Krungsri Research expects the ECB to cut interest rates two more times this year.
China
China’s manufacturing has improved but remains under pressure from persistent excess supply. The official Manufacturing PMI, New Orders Index, and New Export Orders Index all rose for the second straight month in June, following a sharp contraction in April. The Non-Manufacturing PMI also showed a slight improvement (see figure). Meanwhile, the government is planning to boost the birth rate by providing subsidies of $503 per child per year until the age of three.
The latest PMI data show an improvement in the manufacturing sector following the US-China temporary tariff reduction agreement in mid-May. However, the manufacturing sector remains under pressure from persistent excess supply, reflected in (i) industrial profits, which contracted by -9.1% YoY in May and -1.1% over the first five months, and (ii) the Producer Price Index (PPI), which has declined for over 30 months. Meanwhile, the export sector faces growing risks after the US reached a trade deal with Vietnam, especially a 40% tariff on goods from third countries rerouted through Vietnam to the US. Given domestic pressures and trade wars, China’s economy is likely to weaken in 2H25 if there are no additional stimulus measures.
Thailand’s economy appears to be losing momentum in the second half of the year, with signs of weakening across several key sectors.
The economy slowed in May, driven by declines in manufacturing output, investment, and tourism, while consumption remained steady. The Bank of Thailand (BOT) reported that the overall economy in May slightly slowed down from the previous month, mainly due to a decline in manufacturing production (-0.6% MoM sa), particularly in the electrical appliance, which had previously ramped up production. Similarly, private investment fell from a prior month (-0.6%), mainly from the machinery and equipment category. The tourism sector also softened in May, with a drop in both tourism revenue (-7.0%) and the number of foreign tourists (-2.9%). Meanwhile, private consumption remained steady (+0.2%). Export value excluding gold rose from the previous month (+8.6%).
Economic indicators showing a slowdown across multiple sectors reflect weakening growth momentum. Looking ahead, Thailand’s economic outlook for 2H25 faces mounting pressure from several factors, despite some support from short-term stimulus measures, including investment in small- and medium-scale infrastructure projects and program to boost domestic tourism. However, economic growth prospect is expected to face increasing pressure from: (i) exports and investment being impacted by the US reciprocal tariff measures, with trade negotiations showing no progress and at risk of missing the July 9 deadline; (ii) ongoing domestic political uncertainty, which continues to undermine confidence and may affect government spending and trade negotiations; and (iii) structural problem limiting private consumption, particularly impact of high household debt levels, despite the extension of a debt relief program under the “Khun Soo Rao Chuay” scheme. Given the increasingly fragile economic context and signs of weakening growth momentum, additional monetary policy easing — possibly through policy rate cuts — could be anticipated in the second half of the year.
Both number of foreign tourists and tourism revenue declined in 2H25, with total number of visitors this year likely to fall short of expectations. In June, Thailand welcomed 2.32 mn foreign tourists, a year-on-year (YoY) decline of 15.2%, compared to 2.27 mn in May. Tourism revenue for the month totaled THB98.9 bn, down 20.3% YoY. Thailand's top five tourist source countries were Malaysia, China, India, Singapore, and South Korea. In 1H25 (January–June), Thailand recorded a total of 16.69 mn foreign tourist arrivals (-4.7% YoY), generating THB 772 bn in revenue (-2.3%).
Data from the first half of 2025 suggests that Thailand’s tourism sector has yet to return to a recovery path, amid pressure from several key factors: (i) the slow recovery of Chinese tourists — Chinese arrivals dropped sharply by -34.1% YoY to just 2.27 mn, accounting for only 40.1% of its pre-pandemic level in 2019; (ii) the weakening global economy which may affect the purchasing power of tourists from many countries; and (iii) intensifying competition from Asian countries such as Japan and Vietnam, which have rapidly developed their tourism destinations, resulting in a marked increase in tourist arrivals compared to Thailand’s sluggish recovery during the same period. Given the aforementioned factors, Krungsri Research expects that the number of international tourists to Thailand this year is at risk of falling short of the previously projected 36.5 mn.
