IMF Upgrades Economic Forecasts for US and Japan; China Hits 5% Growth Target for 2024 – Thailand Business News

The IMF forecasts economic growth for the US and Japan amid policy uncertainties. China met its 5% growth target, while the US faces risks from inflation and Trump’s policies.

The US economy is expected to gain short-term support from Trump’s policies

Although Trump’s policies may stimulate short-term growth, they increase the risk of a slowdown in the next period. In December, headline inflation rose from 2.7% in November to 2.9% YoY, while core inflation slightly eased from 3.3% to 3.2%. Meanwhile, Philadelphia Fed Manufacturing Index in January climbed to its highest level since April 2021. Additionally, the IMF projects that the US economy will grow by 2.7% in 2025, higher than the previous forecast of 2.2%, though slowing from 2.8% in 2024.

The US economy is expected to gain short-term support from Trump’s policies, such as corporate tax cuts, deregulation, and support for the digital assets. However, policies like deporting illegal immigrants and raising tariffs on trading partners, especially China, may hinder US economic growth in the future. In addition to inflationary pressures from rising production and labor costs, other high-risk factors remain, such as

(i) a rise in corporate debt refinancing;

(ii) the highest number of bankruptcy filings in 14 years; and

(iii) increased delinquency rates, particularly in credit card and auto loans. Given these factors, Krungsri Research expected the Fed Funds rate to be cut by an additional 75bps to a range of 3.50-3.75% by end-2025, aligning with the growing downside risks.

Japan’s recovery remains fragile, hindered by weak manufacturing and exports amid the economic slowdown of its trading partners.

Service sector and stimulus measures help boost Japan’s recovery, while rising inflation and wages pave the way for rate hikes. In 2024, international tourist arrivals reached a record high of 36.87 million, up 47.1% YoY. Meanwhile, Tokyo inflation in December stood at 3% YoY, the highest in 14 months, while Tokyo Core inflation reached 2.4%, the highest since August 2024. The IMF projects Japan’s economy to grow by 1.1% in 2025, following a contraction of -0.2% in 2024.

The recovery remains fragile due to sluggish manufacturing and exports amid a slowdown in trading partners’ economies, intensified competition in the automotive industry, and trade war risks. However, Japan’s recovery continues to gain momentum, as evidenced by improved business confidence and record-high tourist arrivals. This recovery is further supported by rising wages and a JPY39 trn stimulus package designed to reduce living costs and encourage investment. These factors would continue to support economic growth. Consequently, Krungsri Research anticipates a higher probability of the Bank of Japan (BOJ)’s rate hike at its January 23–24 meeting. However, the unveiling of Trump’s policy details remains a crucial factor that could influence the BOJ’s future decisions.

China’s 2024 economic growth reached the 5% official target

China’s 2024 economic growth reached the 5% official target, driven mainly by stimulus measures and exports. GDP accelerated to 5.4% YoY in 4Q24 from 4.6% in 3Q24, bringing the annual growth in line with the 5% target. Meanwhile, the decline in average prices of new and secondhand homes across 70 cities began to slow in 4Q24. However, consumption remained weak, growing just 3.7% YoY in December, close to 3% in November. Similarly, fixed asset investment showed a subdued growth of just 3.2% in 202.

Despite exports remaining strong (+10.7% in December), the potential escalation of the trade war is likely to weaken the export performance. Thus, the government is expected to focus on boosting the domestic economy this year with targeted stimulus measures that extend to additional products/industries, particularly trade-in subsidies for household appliances, along with easing monetary policy. We expect these measures to support a gradual recovery of consumption and investment in 1H25. However, risks from the trade war and structural issues might slow China’s economic growth from 5% in 2024 to 4.8% in 2025.

Thailand’s Business Investment Outlook Shows Promising Growth

Investment shows positive signs from BOI promotion applications but still faces challenges. Meanwhile, consumer confidence has improved but its momentum should be monitored after the end of stimulus measures.

Applications for BOI investment incentives reached a 10-year high of over THB 1.1 trn in 2024, while other indicators suggest more challenges ahead. The Board of Investment (BOI) reported that the number of applications for investment promotion reached a record high of 3,137 projects (+40% YoY) in 2024 and  its investment value rose to the highest level since 2015 at THB 1,138.5 bn (+35%). Investment values in the target industries were led by Digital (THB 243.3 bn), Electronics & electrical appliances (THB 231.7 bn), Automotive & parts (THB 102.4 bn), Agriculture & food processing (THB 87.6 bn), and Petrochemicals & chemicals (THB 49.1 bn). Foreign Direct Investment (FDI) accounted for 2,050 projects (+51% YoY) with total investments worth THB 832.1 bn (+25%), led by investors from Singapore, China, Hong Kong, Taiwan, and Japan.

The outlook of business investment shows more positive signs, as reflected by the growth in both the number and investment value of BOI promotion applications. Additionally, the issuance of investment promotion certificates, which is a step close to actual investment, recorded 2,678 projects (+47% YoY) with total investments worth THB 846.5 bn (+72%).

In addition, there are government’s policies supporting investment, including (i) the Cabinet’s approval of the draft Entertainment Complex Business Act on January 13, and the criteria adjustment for the Long-Term Resident Visa to attract high-potential foreign professionals to Thailand, and (ii) measures to alleviate the impact of the Global Minimum Tax, such as the BOI’s plan to allow promoted companies to reduce corporate income tax by 50% of the normal rate for up to 10 years, as well as measures to enhance competitiveness. However, several challenges continue to pressure the investment climate, such as (i) the Business Sentiment Index (BSI) in December remaining below 50 (indicating contraction zone) for the 15th consecutive month and a 1.7% contraction in the Manufacturing Production Index over the first 11 months of 2024, (ii) structural problem such as declining competitiveness, and (iii) the rising trade tensions between the US and China.

Consumer confidence gradually recovers on the back of short-term stimulus measures, but growth of household income remains sluggish. The Consumer Confidence Index (CCI) in December increased for the third consecutive month, reaching a six-month high of 57.9, up from 56.9 in November. This improvement was supported by a further recovery in the tourism sector during the high season and  government’s stimulus measures, which boosted spending among low-income groups. Meanwhile, spending among middle-income groups slowed, as reflected in a contraction in durable goods purchases.

Although the CCI has improved, the sustainability of its recovery remains uncertain, as the current index level is still relatively low compared to the pre-COVID average (75.5 in 2019). The positive momentum has largely been driven by short-term stimulus measures.

Early this year, additional measures included the Easy E-Receipt program and a THB 10,000 cash handout for eligible senior citizens are expected to provide temporary support. However, consumption continues to face structural challenges, particularly due to high household debt, despite a gradual decline in debt burden following the debt relief program for vulnerable groups. According to the National Statistical Office’s latest data (2021–2023), compiled by Krungsri Research, average liquid assets per household increased by just THB 8,238 per year, primarily due to an increase in deposits and other financial assets rather than a rise in net income. 

Moreover, income growth has been slow and close to spending growth, reflecting weak household consumption. In particular, households with earnings of less than THB 30,000 per month (accounting for 67% share of total households) have been struggling with their spending growth outpacing their income growth or their expense-to-income ratio exceeding 100%.

As global economies navigate complex challenges, policy uncertainties loom large, impacting investment decisions and overall economic stability. Countries are grappling with issues like inflation, geopolitical tensions, and shifting trade dynamics. This environment of unpredictability is underscored by the International Monetary Fund’s (IMF) latest economic forecasts, which indicate encouraging adjustments for key economies such as the United States and Japan, suggesting a possible resilience amidst the chaos.

In contrast to the intricacies observed in the US and Japanese markets, China’s achievement of its 5% economic growth target in 2024 highlights its relatively robust economic strategy. The country continues to implement policies aimed at stimulating domestic consumption and advancing technological innovation, positioning itself for sustained growth despite global headwinds. This achievement demonstrates China’s commitment to maintaining stability and progress within its economy, even as uncertainties affect other nations.

The divergence in economic performance among these major economies may reshape global financial landscapes. As the US and Japan brace for potential outcomes stemming from policy shifts, China’s success provides a contrasting narrative, suggesting that adaptable and proactive measures can yield positive results. This situation emphasizes the critical importance of strategic policymaking in fostering resilience and stability in an increasingly interconnected world.

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