FED and ECB may still weigh inflation in shaping rate-cut path. China is fighting on multiple fronts.
US
Although the U.S. economy is clearly slowing, rising inflation may hinder sharp rate cuts. Headline inflation rose to 2.9% YoY in August from 2.7% in July, while core inflation stood at 3.1%, the highest since February. Meanwhile, initial jobless claims increased to 263,000 in the week ending September 6, the highest since October 2021. In addition, September’s consumer confidence index dropped to a 4-month low of 55.4.
Economic and labor market indicators continue to signal a further slowdown—for example, weak nonfarm payrolls, the highest unemployment rate in nearly four years, and job openings falling to a 10-month low. These factors increase the chances of further Fed rate cuts. Krungsri Research expects policy rates to decline by another 2–3 times (by 25bps each) from September to end-2025. However, the pace of easing still depends on inflation risks, which could rise due to the impacts of Trump administration’s import tariff hikes.
Eurozone
ECB signals it is nearing the end of rate-cut cycle, while France’s political turmoil may drag on. The ECB kept the policy rate at 2.0% in its September 11 meeting, noting that economic risks are now more balanced. It raised 2025 GDP forecast from 0.9% to 1.2%, while inflation is expected at 2.1% this year before easing below the 2% target in 2026–27.
France’s political problems may persist even though President Macron appointed Defense Minister Sébastien Lecornu as the new Prime Minister, replacing François Bayrou who had just resigned. Still, securing parliamentary support for fiscal consolidation will remain difficult. For the eurozone, the economy continues to slow, weighed down by sluggish consumption, wage growth decelerating for four straight quarters, and declining consumer confidence. Exports are also likely to face more pressure from U.S. tariff hikes. However, the slowdown is not yet severe enough to pose a recession risk. Given that inflation is hovering close to the 2% target, Krungsri Research expects the ECB to slow its pace of rate cuts in order to assess risks further, after having cut rates eight times in a row since June 2024.
China
China faces mounting external pressures. Exports in August grew at the slowest pace in six months, up just 4.4% YoY, while exports to the U.S. contracted deeper, by -33.1% in August vs -21.7% in July. By contrast, exports to other major partners remained robust, including ASEAN (+22.5%) and the EU (+10.4%). At the same time, headline inflation has stayed below 1% for 30 straight months. Meanwhile, Mexico announced import tariffs on Chinese goods, including 50% on automobiles, 35% on steel, toys, and motorcycles, and 10-50% on textiles.
Apart from the negative impact of U.S. tariffs, China is now under additional pressure from tariff hikes imposed by U.S. allies. Meanwhile, exports to other major partners may be insufficient to offset the decline in U.S. demand. Moreover, there is also the risk of U.S. transshipment tariffs. Thus, China needs to rely more on domestic consumption to support economic growth. However, consumption-boosting measures may deliver only short-term benefits, while tackling issues of intense price competition and overcapacity will take considerable time before yielding noticeable results.
Clearer political situation and policy continuity expected to support confidence and domestic economic activity
Consumer confidence in August falls to 32-month low. New government prepares stimulus measures via co-payment scheme. The consumer confidence index fell for the seventh consecutive month in August, dropping to 50.1 from 51.7 in July, marking the lowest level since January 2023. The decline reflected concerns over (i) domestic political uncertainty (the survey was conducted before the political transition), (ii) Thailand’s slow pace of economic recovery, and (iii) potential impact of U.S. tariff hikes on exports and domestic employment.
The continued decline in consumer confidence to its lowest level in nearly three years, reflects mounting pressure on household spending. This is consistent with the Private Consumption Index (PCI), which the Bank of Thailand reported it had contracted for the third consecutive month in July (-0.2% MoM), amid political uncertainty, a slow tourism recovery, and falling farm incomes caused by lower agricultural prices. However, the new government is preparing to reintroduce stimulus measures such as the “Co-Payment” scheme, with a budget of around THB 25 bn previously allocated for the Digital Wallet program. The measure is aimed at shoring up short-term domestic consumption and alleviating concerns among consumers, SMEs, and small businesses that rely heavily on domestic demand. Overall, this is expected to provide some momentum from domestic demand in the final quarter of the year, at a time when external pressures are increasingly weighing on exports.
Prime Minister set to push forward 4 key policies amid time constraints. PM Anutin Charnvirakul outlined four key policy priorities that his administration will expedite: (i) Economy: Reduce living costs related to energy and transportation, resolve debt problems for farmers and low-income earners, and generate income for grassroots communities. (ii) Security: Address tensions along the Thai–Cambodian border through peaceful means, ensuring no territorial or national interests are compromised, while providing fair compensation to affected citizens. (iii) Natural disasters: Establish effective systems for early warning, prevention, relief, and fair compensation for disaster victims. (iv) Social Issues: Combat narcotics, human trafficking, gambling, and online scams, with strengthened cooperation with neighboring countries.
A clearer political environment and the announcement of key policy directions are expected to support economic policy implementation. However, significant challenges remain, particularly ensuring the effectiveness of these policies and delivering tangible results within a short timeframe, given budgetary constraints and the minority government status, which could hinder the passage of certain measures. As such, prioritizing policy implantation, delivering quick results, and laying the groundwork for longer-term development, will all be key to supporting Thailand’s economic recovery amid mounting external pressures.