Escalation of trade wars may add further pressure on global economy. China is under pressure from both demand and supply sides.
US
U.S. faces rising uncertainty in growth, inflation, and interest rates after Trump escalated trade wars. U.S. economy grew 3.8% QoQ annualized in 2Q25, beating expectations of 3.3%. Meanwhile, initial jobless claims for the week ending September 20, fell to 218,000, the lowest in two months. However, consumer confidence index dropped to 55.1 in September from 58.2 in a prior month. Inflation measured by the PCE price index accelerated to 2.7% YoY in August, the highest in six months.
President Trump plans to impose additional tariffs starting October 1, including 30–50% on furniture, 25% on heavy trucks, and 100% on pharmaceutical products, adding pressure on inflation going forward. Combined with stronger-than-expected economic data, the Fed may need to adopt a more cautious monetary policy stance. However, declining consumer confidence, a clear slowdown in the labor market, and the impact of higher import tariffs are expected to weigh more heavily on economic growth in the second half of the year. As a result, the Fed is likely to cut rates two more times (by 25bps each) at the remaining meetings this year.
Japan
New LDP leadership election boosts confidence in economic stimulus plans. In September, Japan’s Flash manufacturing PMI fell to 48.4 from 49.7 in a prior month, the deepest contraction in six months, while Flash services PMI edged down from 53.1 to 53.0. Meanwhile, Tokyo CPI inflation held steady at 2.5% YoY.
Japan’s economy shows clearer signs of slowdown, with manufacturing contracting sharply and exports declining for a fourth consecutive month, pressured by U.S. trade protectionism measures and global economic slowdown. At the same time, domestic consumption remains under strain from high inflation. However, the ruling LDP’s leadership election on October 4 is expected to support confidence in new government’s stimulus measures, such as tax cuts and direct household subsidies. If such policies play a meaningful role in driving growth, it could increase the likelihood of the BOJ considering another rate hike toward the end of this year.
China
Excess supply and a fragile labor market continue to weigh on China’s economy. Industrial profits in the first eight months of this year grew just 0.9% YoY, compared with -1.7% in the first seven months. Meanwhile, the youth unemployment rate (ages 16–24, excluding students) rose to 18.9% in August from 17.8% in July. The employment sub-indices of the manufacturing and non-manufacturing PMIs in August remained in contraction zone for the 30th consecutive month, at 47.9 and 45.6, respectively.
The latest industrial profits still reflect pressure from intense price competition and excess supply. Although the government has introduced measures to address these issues, it is expected to take time before their effects clearly emerge. Moreover, policy effectiveness may be limited by U.S. tariffs, which push businesses to keep prices low to stay competitive. Meanwhile, labor market indicators still reflect a mismatch between the seasonal surge in labor supply (fresh graduates) and weak demand from firms wary of investing. In addition, a Supreme Court ruling to prevent avoidance of social insurance contributions from September 1 may prompt firms to reduce hiring due to higher costs.
Weak fiscal position and growth headwinds pressure Thailand’s credit rating; U.S. reciprocal tariffs weigh on Thai exports
Fitch downgrades Thailand’s outlook to negative, citing fiscal strains and political fragility. Fitch Ratings has affirmed Thailand’s credit rating at BBB+ but revised the outlook from ‘Stable’ to ‘Negative’ due to (i) rising risks to the fiscal outlook stemming from prolonged political uncertainty, and (ii) growth headwinds including slowing global demand, a delayed tourism recovery, and household deleveraging.
Fitch’s recent revision of Thailand’s credit outlook to Negative, following Moody’s move earlier in April, reflects the country’s structural challenges in public finance and growth potential. In the short term, the government is preparing stimulus measures, including plans to support vulnerable groups, boost domestic spending and promote domestic tourism, aimed at helping revitalize domestic demand and cushion the impact of export slowdowns. Over the medium to long term, the key challenge lies in pursuing policies that enhance economic growth potential while simultaneously reducing fiscal deficits and maintaining fiscal discipline, in order to contain public debt and mitigate the risk of future credit rating downgrades.
August exports slowed down to single-digit growth in US dollar terms and posted a contraction for second straight month in baht terms. The Ministry of Commerce reported that export value in August stood at USD 27.7 bn, posting the slowest growth in 11 months at 5.8% YoY. Excluding oil-related products and gold, exports rose by 5.4%. Key products that continued to expand included computers and parts, integrated circuits, and rubber products, while agricultural exports contracted again due to intensified price competition, notably in rice, rubber, and cassava. In terms of markets, an expansion was seen in exports to major destinations such as the U.S., China, and ASEAN, while a contraction was seen in shipments to the EU and Japan. For the first eight months of 2025, export values reached USD 223.2 bn, an increase of 13.3%.
Thailand’s exports slowed markedly in August following the imposition of the 19% U.S. reciprocal tariff that took effect on August 7. Exports to the U.S. grew by only 12.8% YoY, down sharply from an average of nearly 30% during the first seven months of the year, reflecting the fading impact of front-loaded shipments and signaling the likelihood of continued export slowdown to the U.S. At the same time, the appreciation of Thai baht in August led to a second consecutive monthly contraction in export value measured in baht terms, down by -5.5% YoY. This situation has pressured domestic exporters’ revenues, particularly those with high local content and limited reliance on imported raw materials. Taken together, both the U.S. import tariff hike and the baht appreciation are expected to significantly weaken the role of exports as a key growth engine of the Thai economy, especially from the third quarter of this year onward.