Trump’s new tariff plan increases risks of a deeper economic slowdown in 2H25; China maintains solid growth but slowdown signs emerge.
US
U.S. inflation concerns and tariff uncertainty are likely to keep the Fed on hold at this month's meeting. In June, U.S. headline inflation rose to the highest level in four months at 2.7% YoY. However, core inflation came in lower than market expectations at 2.9%. Meanwhile, retail sales rebounded to grow 0.6% MoM in June, after contracting -0.9% the previous month.
Rising concerns over inflationary pressures under Trump’s proposed tariff hike of 20–50% on various trade partners after the August 1 deadline could lead the Fed to maintain its policy rate at the July 29–30 meeting, as it waits for greater clarity on trade policy direction. However, with the broader economy showing signs of slowing momentum—driven by tariff uncertainty, aggressive immigration enforcement, and planned cuts in federal spending—Krungsri Research expects the Fed to begin cutting rates again, with 2–3 reductions likely in the remainder of the year.
Eurozone
Trade policy risks escalate following Trump’s announcement of a minimum 15–20% tariff on imports from Europe. In July, the ZEW Economic Sentiment Index rose to 36.1 from 35.3 in the prior month. Headline inflation ticked up to 2.0% YoY in June from 1.9% in May, while core inflation held steady at 2.3%.
Eurozone’s economy is facing more pressures from U.S. trade policies after President Trump announced a 15–20% minimum tariff on European goods if a trade agreement cannot be reached before August 1. Our study found that a 20% tariff could result in a -1.42% decline in European exports in the long term, led by textile, metal, and electronics goods with losses of –2% to –3%. Meanwhile, the labor market begins to show signs of weaker wage growth, lower job vacancy rate, and higher unemployment rate. Combined with low consumer confidence, this signals a potential slowdown in economic activity in 2H25. For these reasons, Krungsri Research expects the ECB to cut policy rates two more times this year.
China
Stimulus measures have supported China’s economy, but momentum is starting to fade amid pressures from the trade war. In 1H25, China’s GDP grew by a better-than-expected 5.3% YoY. Retail sales rose from 4.6% in the first three months to 5% in 1H25, while export growth edged up from 5.7% to 5.9%.
Economic growth in 1H25 was partly supported by consumption stimulus and exports, which showed solid growth thanks to front-loading shipment ahead of the tariff hikes. However, ongoing weakness in the real estate sector and excess supply in manufacturing continued to weigh on the economy, dragging growth momentum in late 2Q25. This was reflected in (i) new home sales plunging from -8.6% in May to -22.8% in June, (ii) retail sales growth slowing from 6.4% to 4.8%, and (iii) fixed asset investment growth dropping from 3.7% in the first five months to 2.8% in 1H25. Moreover, the trade war could re-intensify after the temporary tariff reduction between China and the U.S. expires in August, posing a key risk to economic growth in 2H25.
Thai-U.S. trade talks eyed after U.S. cut tariffs on two ASEAN nations to 19–20%; Foreign tourist arrivals in 2025 may dip from last year.
While BOI rolls out measures to cushion trade war impacts, Thai-U.S. trade negotiations remain under watch. The Secretary of the Board of Investment (BOI) stated that the U.S. recent announcement of reciprocal tariffs has raised concerns among investors. Combined with intensifying business competition, the BOI announced an initiative titled “Enhancing the Capabilities of Thai Entrepreneurs for the New Era.” The initiative has two main objectives: (i) To enhance competitiveness and strengthen the domestic supply chain. (ii) To mitigate risks arising from U.S. trade policies and streamline investment strategies to maintain balanced business competition. The program consists of 5 measures (see table).
According to BOI data during 1Q25, investment promotion applications showed strong growth—both in the number of projects (822 projects, +20% YoY) and in total investment value (THB 431 bn, +97% YoY). The growth was led by investments in key target industries, particularly the digital industry and the electrical and electronics sector. However, uncertainty surrounding U.S. tariff policies remains a significant headwinds for investor decision-making—particularly in industries that are deeply integrated into global supply chains and heavily reliant on access to the U.S. market. Ongoing Thai-U.S. trade negotiations are being closely monitored to see whether reciprocal tariffs can be reduced below the announced rate of 36%. Meanwhile, regional competitors like Vietnam and Indonesia have successfully negotiated tariff reductions to 20% and 19%, respectively. If Thailand continues to face relatively higher tariff rates, it could undermine the country’s competitiveness in the longer term.
Chinese tourist arrivals recover at a slow pace. Krungsri Research estimates total foreign tourists to reach only 34 mn this year. From January 1 to July 13, a total of 17.75 mn foreign tourists visited Thailand, marking a 5.6% decline from the same period last year (YoY). These visitors generated THB 822 bn in revenue. The top 5 source countries were Malaysia, China, India, Russia, and South Korea.
According to the latest weekly data, Chinese tourist arrivals have shown signs of recovery, rising to over 10,000 visitors per day from the previous 7,000–8,000. However, this remains well below the 2019 pre-Covid level of 30,000 per day, indicating that a full-fledged recovery remains distant. In addition to lingering safety concerns, Thailand also faces intense competition from rival destinations such as Japan and Vietnam. Given these factors, Krungsri Research has revised down its forecast for foreign tourist arrivals to Thailand in 2025 to 34 mn, from the previous estimate of 36.5 mn, and lower than last year’s figure of 35.5 mn. The revision reflects concerns that a recovery in Chinese tourists may remain weak in the second half of the year. While tourists from other countries, such as India and Europe, show signs of improvement, they are unlikely to fully offset the shortfall left by Chinese tourists—previously Thailand’s largest source of tourists.
