U.S. government shutdown dampens sentiment. New LDP leader to become Japan's first female prime minister. China gains support from services.
US
Government shutdown weighs on confidence. Recent data still show signs of slowing U.S economy. Private-sector employment fell the most in 2-1/2 years by 32,000 in September. Consumer confidence index also dropped to a five-month low of 94.2. Moreover, the shutdown has delayed the release of official September nonfarm payrolls data.
The Senate’s failure to pass a temporary budget bill before the start of the new fiscal year has led to the partial closure of government agencies (or a government shutdown) from October 1. Although the economic impact is expected to be limited—based on previous shutdowns—there are concerns that a prolonged political standoff could weigh on incomes and purchasing power, posing more serious risks to the broader economy. Other key indicators—such as private employment, consumer sentiment, and the manufacturing PMI—also point to a continued slowdown. Given these conditions, Krungsri Research still expects the Fed to cut rates twice more this year (by 25bps each), bringing the policy rate down to 3.50–3.75% by year-end.
Japan
Japan’s economic momentum remains subdued as LDP leadership election raises hopes for new stimulus. The Tankan index for large manufacturers edged up to +14 in Q3 from +13 in Q2, while the non-manufacturing index held steady at +34. Meanwhile, large firms are projecting an increase in capital spending of 12.5% YoY, the strongest increase in seven quarters. However, retail sales fell by -1.1% YoY in August after rising +0.4% in July. On the political front, Sanae Takaichi was elected as the new LDP leader, paving the way for her to become Japan’s first female prime minister.
Despite an improvement in large manufacturers’ sentiment and their investment plans, other key indicators have weakened—particularly the contraction in retail sales. Moreover, the U.S. tariff hikes could increase pressure on Japan’s manufacturing, exports, and corporate earnings, potentially keeping economic growth subdued. These challenges make it difficult for the BOJ to consider raising interest rates. However, optimism surrounding the new LDP leader’s stimulus agenda could pave the way for a rate hike later this year.
China
Services continue to support China’s economy, while the long National Day holiday is expected to further boost economic activity. The manufacturing PMI rose slightly from 49.4 in August to 49.8 in September but remained in contraction for the sixth straight month, marking the longest streak since 2019. The services PMI continued to expand, though it edged down from 50.5 to 50.1. New home sales rose just 0.4% YoY (vs -17.6% in August). At the same time, local governments provided over 330 million yuan in subsidies to promote tourism, particularly during the National Day holiday (October 1-8).
Services continue to support the economy and are expected to be increasingly vital after the government expanded measures to boost service consumption in September. The manufacturing sector showed slight improvement but remains under pressure from excess supply, weak demand, and U.S. tariff policies. The property sector remains weak, with demand for new homes expected to decline over the long term in line with the shrinking population. Meanwhile, the long National Day holiday is expected to boost economic activity in October, with the government estimating a 3.2% YoY rise in nationwide travel to 2.4 billion trips.
Exports and domestic demand weaken in 3Q25; Fiscal and monetary support expected to cushion the economy in the final quarter.
Thai economy shows clear signs of weakness, supporting case for BOT rate reduction. The Bank of Thailand (BOT) reported that in August, overall economic activity showed signs of weakening. Merchandise exports excluding gold fell slightly in the month (-0.1% MoM, sa), with shipments to the U.S. declining for the first time after the new tariffs came into effect from August 7. Private investment contracted (-0.2%) due to a decline in investment in machinery and equipment. Private consumption showed zero growth (0%), led by a fall in spending on durable and semi-durable goods. However, both the number of foreign tourist arrivals and tourism receipts, after seasonal adjustment, rose from the prior month (+2.8% and +2.7%, respectively).
Indicators from July to August point to a clear weakening of Thailand’s economic drivers in 3Q25. At the upcoming Monetary Policy Committee (MPC) meeting on October 8—the first under the new Bank of Thailand Governor (Mr. Vitai Ratanakorn), Krungsri Research expects the policy rate to be cut from the current 1.50% to 1.25%, citing broad-based and marked slowdowns in private consumption and investment, as well as signs of weakening exports affected by higher U.S. import tariffs. Additional monetary easing in early October, coupled with the government’s short-term fiscal stimulus preliminarily scheduled to take effect from late October, is expected to help the economy avoid falling into a technical recession later this year.
Short-term stimulus measures expected to support confidence and spending later this year. The government is preparing to roll out measures to increase purchasing power during November–December covering 33 mn people with a total budget of approximately THB 66 bn. The package consists of: (i) Cash top-ups for state welfare cardholders (13.4 mn people), increasing monthly benefits from THB 300 to THB 1,150 (an additional THB 850 per month) for two months, with a total budget of THB 22 bn. (ii) “Co-Payment Plus” scheme for Thai people aged 16 and above (20 mn people), with a budget of THB 44 bn (details to be submitted to Cabinet this week). In addition, the government will introduce measures to promote domestic tourism and investment, as well as enhance liquidity for SMEs.
The recent stimulus measures are expected to help shore up confidence and improve domestic spending later this year. At the same time, the arrival of the tourism high season may provide some support to both international tourist arrivals and associated revenues. These positive factors should help partially offset the drag from weakening exports. Therefore, Krungsri Research has maintained our 2025 GDP growth forecast at 2.1%. However, the fading impact of front-loaded exports, combined with the mounting negative effects of U.S. tariff measures, is expected to slow Thailand’s economic growth in the second half of the year to 1.3%, down from 3.0% in the first half.