Impacts of U.S. tariff hikes on economies worldwide expected to become more evident in 2H25. China faces internal and external pressures.
US
Weaker-than-expected employment figures in the U.S. increase likelihood of Fed rate cuts later this year. The FOMC voted 9-2 to keep the policy rate at 4.25–4.50%, stating that the current monetary policy stance is appropriate to address uncertainties surrounding tariff policies. However, non-farm payrolls rose by only 73,000 in July—well below expectations. Moreover, June figures were significantly revised down from 147,000 to 14,000 - marking the lowest level in nearly 5 years. The unemployment rate also ticked up from 4.1% to 4.2%, indicating a sharper slowdown in the labor market.
Although the U.S. announced new reciprocal tariffs on July 31 at rates ranging from 10% to 40%—lower than the average rates announced in April—most of these new tariffs are still significantly higher than those in previous periods. As a result, they are expected to negatively impact the U.S. economy going forward. In particular, the labor market showed clearer signs of a sharp slowdown and domestic demand in Q2 posted the weakest growth in 2-1/2 years. Therefore, Krungsri Research expects the Fed to cut rates two more times this year.
Japan
BOJ keeps policy rate steady while raising economic and inflation outlook. The Bank of Japan (BOJ) maintained its policy rate at 0.5%, while revising up its 2025 inflation forecast from 2.2% to 2.7%. Its GDP forecast this year was also raised slightly from 0.5% to 0.6%. In June, retail sales grew 2.0% YoY, up slightly from 1.9% in the previous month. However, the job openings-to-applicants ratio declined for a third consecutive month, falling to 1.22 in June.
Although recession risks have eased following the trade deal with the U.S.—setting the new tariff rate at 15%, down from the previously threatened 25% and lower than the 19–40% rates imposed on many countries—Japan's economy is likely to grow slowly in 2H25. This comes amid expectations of weaker exports due to higher U.S. import tariffs compared to last year. Meanwhile, political instability continues to weigh on confidence, as the minority government struggles to push forward its economic agenda and faces the risk of a political vacuum. Given the combination of low growth and high political uncertainty, we expect the BOJ to maintain its policy rate at 0.5% through the end of this year.
China
China prepares to step up its “anti-involution” measures amid pressures on multiple fronts. The NBS reported that the manufacturing PMI, new orders index, and new export orders index all contracted significantly in July (see figure). Meanwhile, the services PMI slowed down, though it remained in the expansion territory. New home sales saw a further contraction, from -22.8% YoY in June to -24% in July.
The latest PMI indicates that China's overall economy remains fragile and vulnerable to external risk factors, particularly the trade war. Weakness in the real estate sector continues to drag down household wealth and partly undermine confidence and spending. Although trade-in subsidies may help stimulate consumption to some extent, a key limitation lies in concerns over job security and income generation. Meanwhile, subsidies in social welfare and “anti-involution” measures aimed at curbing intense price competition are expected to gradually improve sentiment and mitigate oversupply issues in certain industries. Recently, the government spent a record-high CNY 5.7 trn on social welfare in 1H25.
Despite a reduction of U.S. tariff on Thai goods from 36% to 19%, it remains a key drag on Thailand’s economy in the second half of the year.
Thailand’s economy slowed in June due to weaker tourism and consumption, though overall 2Q25 performance continued to grow. The Bank of Thailand (BOT) reported that the overall economy in June showed signs of a slowdown. The number of international tourist arrivals and their spending declined from the previous month (–2.8% and –2.1% MoM sa). Private consumption also weakened (–0.3%), due to a contraction in spending on services and durable goods, particularly in the automotive sector. Meanwhile, the value of exports excluding gold declined (–4.8%). However, private investment rebounded (+0.7%), and government spending expanded from the previous year in both current and capital expenditures.
Despite the economic slowdown in June, key indicators for the overall 2Q25 (April–June) still showed a year-on-year (YoY) expansion. Exports grew sharply by 15.0% YoY in 2Q25 manufacturing production turned to expand by 1.5%, and government spending remained a key growth driver. Meanwhile, private consumption was steady, while tourism-related activities slowed in line with a decline in foreign tourist arrivals. Krungsri Research expected Thailand’s 2Q25 GDP to grow by +0.4% QoQ sa or +2.7% YoY, slowing from +0.7% QoQ sa or +3.1% YoY in 1Q25. Official GDP figures for 2Q25 will be released on August 18.
In 2H25, the Thai economy is expected to slow down more noticeably, with growth potentially decelerating to just 1.4%, down from an estimated 2.9% in 1H25. The main drag stems from a sharp slowdown in exports as the impact of U.S. tariff hikes would become more apparent, and the temporary boost from front-loaded orders earlier in the year would fade away. At the same time, high domestic political uncertainty may weigh on confidence and continue to dampen private spending.
U.S. announced to impose a 19% tariff on Thai goods; Krungsri Research maintains Thailand’s 2025 GDP forecast at 2.1%. On July 31, the United States announced it would impose a 19% import tariff on Thai goods, down from the 36% rate previously announced in April. The new rate aligns with that of several ASEAN countries, including Indonesia, Malaysia, the Philippines, and Cambodia. The tariff will take effect on August 7.
Krungsri Research estimates that with the 19% tariff rate, the impact on Thailand’s exports could be nine times less severe than the 36% tariff scenario (see figure). However, the latest 19% tariff rate is broadly consistent with Krungsri’s baseline assumption of 20% used in our 2025 economic outlook. As a result, we maintain 2025 GDP growth forecast for Thailand at 2.1%, with full-year exports expected to grow only 3.5%—a sharp slowdown from the 15% expansion seen in 1H25. However, a key issue that warrants close monitoring and further assessment is the potential trade-offs tied to Thailand’s decision to reduce tariffs on many U.S. goods to zero. This may lead to long-term structural impacts, particularly on the agricultural sector and certain industries that are vulnerable to increased competition from surging imports.
The latest U.S. tariff policy, which is less severe than previously announced, has also affected Thailand’s overall economic outlook. This is reflected in the upward revisions of Thailand’s 2025 GDP growth forecasts by the IMF and the Fiscal Policy Office (FPO), now at 2.0% and 2.2%, up from earlier projections of 1.8% and 2.1%, respectively.
