U.S. labor market slows down further. Eurozone economy remains weak. Cooperation between China and its allies reflects geopolitical complexities.
US
U.S. labor market continues to soften, reinforcing expectations of 2–3 Fed rate cuts this year. In August, nonfarm payrolls increased by only 22,000, a sharp slowdown from a 79,000 rise in July. The unemployment rate edged up to 4.3% from 4.2%, while wage growth slowed to a one-year low of 3.7% YoY. Meanwhile, job openings declined for the third straight month by 170,000 to 7.18 million in July.
The labor market is showing clearer signs of weakness, with nonfarm payrolls posting the smallest gain since the COVID-19 crisis in 2020, unemployment rising to the highest level in nearly four years, and job openings dropping to a 10-month low. These trends point to a more evident economic slowdown, amid fiscal risks stemming from an appeals court ruling that Trump’s import tariffs were “unlawful,” which could force the government to refund collected tariffs in the future. Krungsri Research estimates the Fed could cut rates 2–3 times (by 25bps each) before year-end to mitigate risks of a sharp economic downturn.
Eurozone
ECB is expected to have room to cut rates, as growth remains weak and inflation hovers near the 2% target. Eurozone GDP grew only 0.1% QoQ in 2Q25, down from 0.6% in 1Q25. In July, retail sales rose 2.2% YoY, slowing from 3.5% in June. The economic sentiment index dropped 11 points to 25.1 in August.
Key indicators—including GDP, retail sales, services PMI, and economic sentiment—are signaling an economic slowdown, pressured by U.S. tariff hikes and political uncertainty in France, where Prime Minister François Bayrou faces a high chance of losing the confidence vote on September 8 This could undermine future economic policy implementation and raise risks of a sell-off in French government bonds. Based on these developments, Krungsri Research expects the ECB to cut policy rates two more times (25bps each), bringing the rate down to 1.50% by year-end, as inflation continues to hover close to the 2% target.
China
China’s economy remains fragile, while U.S. tariffs may push China and its allies toward closer cooperation. In August, manufacturing PMI, new orders index, and new export orders index edged up but remain in contraction. The services PMI expanded. Meanwhile, new home sales in August continued to decline, -17.6% YoY and -2% MoM. At the same time, China announced CNY 2 bn in grants for member states under the Shanghai Cooperation Organization (SCO), CNY 10 bn in loans to SCO member banks, and plans to establish the SCO development bank.
China’s economy showed some improvement in August, but remains under numerous pressures, including fragile sentiment, the property crisis, and the trade war. Hopes rest on measures to stimulate consumption, and to address oversupply and intense price competition. Meanwhile, China’s announced broadening of support for the SCO, shortly before the 80th Victory Day anniversary celebrations and the BRICS summit on U.S. tariffs, signals closer economic and political ties between China and its allies, in contrast to the U.S., which continues to pursue tariff policies even against its own allies.
Economic slowdown and low inflation amid political transition support monetary easing
Thailand’s economy expected to grow 2.1% if political transition doesn’t disrupt policy implementation. Although domestic political tension has eased to some extent with Mr. Anutin Charnvirakul officially receiving parliamentary support to become the country’s 32nd prime minister, key issues remain to be closely monitored—particularly the continuity and effectiveness of economic policy implementation amid a still fragile political environment.
Thailand’s political stability remains fragile under a minority government with only 146 seats and a short four-month horizon from the policy statement to Parliament. Krungsri Research expected that if the impact of the political transition on fiscal policy implementation is limited, the Thai economy should expand in line with our base-case forecast of 2.1% in 2025. In the second half of the year, however, GDP growth is expected to slow sharply to just 1.3% YoY, down from 3.0% in the first half. In a downside scenario, if political developments disrupt the continuity and effectiveness of economic policy or hinder trade negotiations with major partners, Thailand’s economic momentum could weaken, raising the risk of growth falling below the base-case projection.
August headline inflation falls for fifth straight month. MPC may cut policy rate twice more by 1Q26. Headline inflation in August stood at -0.79% YoY, marking the negative rate since April. The decline was mainly driven by lower prices of fresh food, energy, and electricity charges. Core inflation (excluding raw food and energy) registered at 0.81%, slightly down from 0.84% in July. For the first eight months of this year, average headline and core inflation stood at 0.08% and 0.94%, respectively.
Headline inflation in 3Q25 is expected to remain in negative territory, following -0.35% in 2Q25, mainly due to low energy prices, government measures to cap electricity fees, and favorable weather conditions this year that boosted agricultural output. In addition, domestic demand is likely to stay weak. For 2025, headline inflation is projected to average just 0.2%, remaining below the lower bound of the official target range for the second consecutive year.
On monetary policy, the low inflation outlook provides room for the Monetary Policy Committee (MPC) to cut the policy rate by another two times, bringing it down to 1.0% by the end of 1Q26. This would help support the economic recovery, which is facing mounting external pressures as front-loaded export orders fade following the U.S. imposition of a 19% tariff on Thai goods, effective from August 2025. At the same time, domestic political transition still leaves uncertainty regarding the continuity and effectiveness of economic policy implementation.
