Two months into the New Year, the economic and investment outlook has turned negative, affected by a global slowdown and intensifying trade wars.
Global business activity in January slowed to its lowest level in a year, according to the world purchasing managers' index (PMI).
The US, the world's largest economy which relies on consumption for 70% of GDP, is showing signs of vulnerability. January retail sales plunged the most in two years, contracting 0.9% month-on-month, with decreases in nine out of 13 categories.
Partly attributed to wildfires and severe snowstorms, the retail sales decline also reflects consumers facing high inflation and interest rates, leading to increased reliance on credit cards and debt. Default rates are beginning to rise, indicating the fragility of the economy.
Meanwhile, US President Donald Trump's import tariff policies may exacerbate inflation problems and further impact consumer spending.
The risks associated with Trump's trade policies have emerged more quickly and been more pronounced than anticipated. Recent tariff measures include a 25% import tariff on Mexico and Canada, which is now scheduled to take effect on March 4 after a one-month pause.
Trump added another 10% tariff on Chinese imports this week on top of the 10% levy announced earlier, which previously prompted Beijing to retaliate with 10-15% tariffs on US goods including crude oil, agricultural machinery, coal and liquefied natural gas.
The US is also collecting a 25% tariff on steel and aluminium imports from all countries, while reciprocal tariffs are due to take effect on April 2 against numerous countries that charge higher import duties than the US.
TROUBLE FOR THAILAND
Thailand is expected to take a significant hit as it charges an average 8.2% tariff on US goods compared with 2.4% charged on Thai goods by the US. As a consequence, US tariffs could rise by 5.8 percentage points to match Thailand's rates, which could reduce Thailand's GDP by 0.5-0.6 percentage points, potentially lowering economic growth to 2.0%.
The tariff threat aside, Thailand's economy is proving more challenging than expected. In the fourth quarter of 2024, GDP grew 3.2% year-on-year, significantly below market expectations. Key negative factors included a sharp contraction in inventories, reflecting business stock clearance and cautious production; shrinking private investment; and a strong pullback in durable goods consumption, reflecting weak purchasing power due to high household debt.
Given this picture, we expect 2025 economic growth to fall below the 2.8% median forecast by the National Economic and Social Development Council (NESDC) based on four risk factors:
- US reciprocal tariffs potentially reducing Thai GDP by 0.5-0.6 percentage points;
- Intense competition from China leading to an increased trade deficit;
- Financial institution lending constraints amid high non-performing and special-mention loans, especially for small businesses; and
- Clearer signs of a global economic slowdown.
- We maintain our 2025 Thai growth forecast at 2.5%, below that of the NESDC, with the following adjustments: export growth revised down to -1.0% from zero, private consumption growth lowered to 1.9% from 2.2%, and private investment growth reduced to -0.2% from 0.5%.
- Given this outlook, we adjusted our investment strategy to emphasise caution amid high risk. We recommend investors wait for clarity on additional government stimulus measures and US trade policy direction.
- We recommend a "selective buy" strategy focusing on three main themes with specific positive factors:
- Earnings plays with profit growth in the fourth quarter of 2024 and first quarter of 2025 as well as consistent dividend potential, including ADVANC, TRUE, AMATA, TIDLOR, MTC, AU and HTC. Investors should focus on companies with strong financial positions and high competitiveness.
- Event-play stocks likely to benefit from government consumption stimulus measures, including CRC, HMPRO, TNP, MINT, AWC and ERW.
- Undervalued SET100 stocks with expected 2025 profit growth, strong financials, share buyback potential, reasonable valuations and consistent dividend potential, including BCP, AP, PTT, TU and SPALI.
Dr Piyasak Manason heads the Investment Strategy Department, INVX-Research Group, at InnovestX Securities
