The Bank of Thailand is expected to cut the policy rate by 0.75 percentage points in 2025 due to challenging economic conditions and the government's limited funds to lift domestic consumption, says KGI Securities.
KGI expects Thai GDP to expand by 2.8% this year, slightly up from a forecast of 2.7% in 2024, but the 2025 estimate "looks challenging" based on several factors facing the country.
"Private consumption indicators did not improve significantly during the early rounds of consumption stimulus since October last year," KGI Securities (Thailand) said in a research note, adding it expects GDP growth to be "noticeably weaker" in the second half of 2025 than in the first six months.
Moreover, the government has a limited fiscal budget for 2025 consumption stimulus after it completes the second phase of cash handouts and the Easy E-Receipt scheme, while there are still uncertainties related to the third phase of the digital wallet cash handouts.
"Given our rising caution on GDP momentum this year, we anticipate the central bank's Monetary Policy Committee [MPC] will cut the policy rate by 75 basis points [bps] to 1.5% in 2025," the brokerage noted.
The MPC considers domestic economic conditions, the pace of US interest rate cuts and the policy framework of the new Bank of Thailand board chairman and governor, scheduled for appointment in 2025, noted KGI.
The Federal Reserve is becoming hawkish, hinting at fewer rate cuts in 2025 as US economic growth remains solid.
The consensus view of KGI economists is global GDP growth of 3.1% in 2025, matching expansion last year. The US still looks the strongest among developed economies, while both the euro zone and Japan are poised to recover from very slim growth in 2024.
Solid US demand and a new trade war are expected to become the global macro themes this year. The economic risks have shifted from recession to the trade war and its consequences for US inflation once import prices begin increasing, said the brokerage.
"Renewed concern about US inflation is reflected in rising inflation expectations and the latest pricing from the Fed fund futures that the Fed may lower interest rates only once by 25bps in 2025, less than two cuts of 50bps guided by the Fed dot-plot projections," KGI said.
In KGI's view, global markets have largely priced in a 30% tax on Chinese goods imported to the US under Donald Trump's proposed policy and should not react much if a similar degree is announced.
"We see a good chance that a trade war will not be as harsh as feared, or it could backfire on the US economy. Our baseline view is the potential impact on Thailand should be limited and manageable," said the brokerage.
