
In 2024, central banks worldwide succeeded in controlling inflation, leading to the beginning of monetary policy easing to stimulate the economy. However, they still face many challenges.
The US economy continued to expand, with third-quarter gross domestic product (GDP) showing acceleration from the first half, while inflation showed signs of slowing, albeit at a slower pace than expected.
In China, economic activity continued to slow down, with third-quarter GDP expansion at 4.6% year-on-year, continuing to decelerate from the first half. The Chinese government shifted its economic management model from "cautious" to full "stimulus" to alleviate a slowdown and stimulate stock market growth. Various stimulus measures have been introduced, such as liquidity injection, local government assistance and support for the struggling real estate sector.
In Thailand, although the economy recovered in the third quarter, growing by 3%, improvement was seen only in certain areas. In the bigger picture, economic growth in 2024 has been estimated at 2.6%, lower than the early-year forecast of 3-4% due to:
- The government's flagship digital wallet project -- now simply a cash handout -- not proceeding as planned;
- Delayed fiscal spending early in the year, as budget preparation was delayed by 8 months, affecting government investment disbursement;
- Tight monetary policy throughout the year, with the Bank of Thailand cutting the policy rate once in October to 2.25%, still the highest rate in 10 years. The move comes amid the first credit contraction in 14 years, high lending rates, continued strengthening of the baht against currencies of trading partners, and inflation below the target range.
FINAL YEAR OF EASING
Entering 2025, we view it as the final year of monetary policy easing, with central banks worldwide preparing to reduce interest rates amid expected challenges from US trade policy under Donald Trump and an economic slowdown in China. We expect 2025 to be the last year major central banks pursue accommodative monetary policy.
The Federal Reserve is likely to cut rates twice in the first half, while the European Central Bank (ECB) may cut up to 4 times amid a weak economy. The Bank of Japan, conversely, could raise rates by 25 basis points in May.
In Thailand, we expect the central bank to make three cuts totalling 75 basis points -- in February, June and October -- to stimulate the slowing economy.
Regarding the economic outlook, we believe the US economy is likely to achieve a soft landing due to relatively high interest rates that will increasingly pressure consumption, investment and manufacturing. Inflation may decrease to 2.5% by the end of 2025, but Mr Trump's policies may create volatility in the second half of the year.
We view that Mr Trump's policies will have severe impacts, but their implementation won't be rapid and will depend on tactical approaches. If the president makes good on his threat to impose 10% tariffs on imports from all over the world, it would slow the global economy, but the US would be the most affected.
Consequently, we expect Mr Trump won't rush into a trade war but will target countries one by one, especially those with large trade surpluses like China, the EU and Mexico. He may also call for bilateral trade agreements, which he strongly prefers over multilateral blocs, while pushing to reduce US corporate tax from 21% to 15% to strengthen the domestic economy first.
In China, although the economy is slowing, the government is preparing stimulus measures to maintain a growth target of around 5%. We expect growth to slow but not reach crisis levels, possibly expanding by around 4.5%, while monetary and fiscal measures focus mainly on restoring confidence in financial and capital markets.
MODEST EXPECTATIONS
Thailand's economy in 2025 is likely to grow by 2.7%, similar to 2024. We have revised down our forecast from 3.0% after the Bank of Thailand maintained the policy rate at 2.25%, indicating no rush to pursue accommodative monetary policy, which will keep liquidity conditions tight.
We expect Thai private consumption to grow by 2.2% next year, while private investment may grow by only 0.5%. Exports will tend to stabilise, with no growth. Inflation will remain below target at 0.9%, while the average value of the baht will likely remain close to current levels (averaging 35.30 per dollar in 2024). We expect the baht to weaken from 34 early in the year to 35-36 baht in the second half.
As for a possible trade war with the US, although Thailand isn't in the top 10, it has a large trade surplus with the US of $29 billion. It may not face direct US tariffs but could face non-tariff barriers such as intellectual property protection and enforcement issues, currency manipulator accusations, and US pressure to open the market for pork imports using ractopamine, a feed additive banned in most countries including Thailand. Given these circumstances and the slowing global economy, we expect Thai exports won't grow next year.
Based on all these views, we recommend a "selective buy" investment strategy for Thai stocks, focusing on two main groups:
- Stocks expected to benefit from the government's upcoming consumption and tourism stimulus measures, which historically have performed well for at least three of the past five years. We recommend the Commerce group (CRC) and Tourism companies (AWC and MINT).
- Earnings-play stocks whose prices haven't reflected fourth-quarter earnings momentum, with profit expected to grow on a yearly and quarterly basis, with consistent dividend potential: GULF, OSP, AMATA, AU, TIDLOR and BCP.
Dr Piyasak Manason heads the Investment Strategy Department, INVX-Research Group, at InnovestX Securities.