Growing signs of economic slowdown in major economies reinforce case for accommodative monetary policy.
US
Rising signs of U.S. economic slowdown strengthen likelihood of Fed rate cuts later this year. In July, headline inflation held steady at 2.7% YoY. Core inflation edged slightly higher from 2.9% in June to 3.1%, broadly in line with market expectations. Retail sales growth also softened to 0.5% MoM from 0.9% in June, in line with a drop in consumer confidence to its lowest level in 4 months at 58.6.
The U.S. slowdown is becoming more evident as higher tariffs weigh on the economy, with job growth weakening and household spending softening. These developments are easing demand-pull inflationary pressures. Although tariff hikes add some cost-push pressure, the impact on inflation is expected to be limited by still-low global energy prices. Given these reasons with the real interest rates still above historical averages, Krungsri Research expects the Fed to cut policy rates by another two to three times before year-end.
Japan
The trade deal with the U.S. helps reduce downside risks to Japan’s economy, indicating no urgency for a rate hike this year. In 2Q25, Japanese GDP grew 0.3% QoQ, stronger than market forecasts of 0.1%, thanks to stronger exports and investment. However, private consumption grew by just 0.2%, highlighting weak household purchasing power.
Japan faces relatively low import tariffs and continues to benefit from a resilient services sector—which accounts for 70% of GDP—both of which help mitigate the risk of a sharp economic slowdown. However, exports and manufacturing are set to come under greater pressure. The boost from front-loading is fading, and global demand is softening following the U.S. tariff hikes that took effect in August. Considering these factors, Krungsri Research expects the BOJ to keep its policy rate unchanged at 0.5% through the rest of the year.
China
China’s economy is beginning to show signs of weakening. Retail sales growth slowed from 4.8% YoY in June to just 3.7% in July. Fixed asset investment decelerated sharply from 2.8% in the first six months to just 1.6% in the first seven months. Headline inflation has remained below 1% for 29 consecutive months, in line with the producer price index, which has fallen for nearly three years. Meanwhile, new loans in July turned to decline for the first time in 20 years.
The latest indicators reflect weakened internal drivers, and the trade war remains a major risk, even though the U.S. and China extended tariff talks by 90 days to November 10. Meanwhile, the government is preparing measures to subsidize loan interest payments for certain service businesses and consumers, along with measures to curb intense price competition, such as prohibiting predatory pricing, controlling production capacity, and regulating local investment promotion. However, overall confidence remains weak, limiting the effectiveness of consumption stimulus, while efforts to address price wars and excess supply could weigh on the economy in the short term and will take time before yielding noticeable benefits.
Thailand’s economy grew 3% in the first half of 2025; Krungsri Research maintains full-year GDP growth forecast at 2.1%.
MPC cut policy rate to 1.50%, aiming to ease burden on vulnerable groups. Krungsri Research expects an additional 1–2 cuts by 1Q26. At its August 13 meeting, the Monetary Policy Committee (MPC) unanimously voted to reduce the policy rate by 25 bps, from 1.75% to 1.50%. The Committee noted that while economic growth in 2025 and 2026 is projected to be broadly in line with previous assessments, U.S. import tariffs will exacerbate structural headwinds and weaken competitiveness. Furthermore, certain sectors have become increasingly fragile, particularly SMEs and low-income households, which face heightened credit risks as reflected in the ongoing credit contraction.
Krungsri Research assesses that the MPC’s latest policy rate cut reflects a shift from its previous focus on “preserving policy space” toward addressing growth concerns, amid rising downside risks from U.S. trade policies and sluggish monetary policy transmission. The BOT noted that the rate cut would help ease the burden on vulnerable groups. However, the headwinds we see include persistent credit contraction, higher ex-post real rates, political uncertainty, Thailand–Cambodia border tensions, and weaker post–front-loading exports. In addition, there could be risks stemming from potential hikes in U.S. tariffs on certain industries as well as a twin influx of goods from China and the U.S. Given these factors, Krungsri Research expects the MPC may deliver another 1–2 rate cuts by 1Q26, while maintaining an accommodative stance alongside efforts to safeguard macro-financial stability within limited policy space.
Thailand’s 2Q25 GDP grew 2.8% YoY and 0.6% QoQ (sa), supported by temporary factors from front-loaded exports. The NESDC reported that the economy expanded by 2.8% in 2Q25, slightly above market expectations of 2.5% and Krungsri Research’s forecast of 2.7%, though slower than the 3.2% growth in 1Q25. Growth in 2Q5 was driven mainly by surging exports of goods, while exports of services slowed in line with a decline in foreign tourist arrivals. Private consumption growth decelerated, due to weaker spending on services. Private investment turned to expand for the first time in five quarters, supported by a low base effect. Public spending slowed but still provided support to overall growth. The NESDC revised up its 2025 GDP growth forecast to 2.0%, from the previous 1.8%.
Krungsri Research assesses that economic outlook in 2H25 will face several headwinds, including: (i) losing momentum of goods exports, following front-loaded shipments earlier in the year, coupled with the impact of higher U.S. tariffs and a slowdown in global growth; (ii) signs of weaker private investment growth amid heightened domestic political uncertainty and ongoing border tensions; (iii) tourism still under pressure from lower-than-expected Chinese tourist arrivals and intensified competition from peers; and (iv) moderate growth of private consumption. Despite domestic tourism stimulus measures, household spending continues to be constrained by potential tariff impacts on employment and income, high household debt, falling farm prices and weak consumer confidence. In 2H25, Thailand’s GDP growth is projected to slow down markedly to only 1.3% YoY from 3.0% in 1H25, resulting in full-year growth of 2.1%.
