[SINGAPORE] South-east Asian economies know a thing or two about resilience.
Asean weathered the 1997 Asian financial crisis, the 2007-2008 global financial trouble, the 2013 “taper tantrum”, the Covid-19 pandemic, and the 2022 interest-rate shock – all while holding its own as a key growth driver for Asia.
In particular, the Philippines and Vietnam – the bloc’s growth stars – have beaten expectations with prints that headline South-east Asia’s economic expansion.
Growth outlook
Among the Asean majors – the six largest economies in the region – Vietnam and Indonesia have the boldest goals: both intend to secure “high-income nation” status by 2045.
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In February, Vietnam raised its gross domestic product growth target for 2025 to at least 8 per cent from last November’s 6.5 to 7 per cent range, in hopes of generating enough economic momentum to bring the country to its goal of sustained double-digit expansion from 2026 to 2030.
And despite Vietnam being one of the hardest hit by Trump’s reciprocal tariff at 46 per cent, Prime Minister Pham Minh Chinh still says that the nation’s growth target remains intact.
Over in Indonesia, President Prabowo Subianto has pledged to achieve annual economic growth of 8 per cent in his first term, which ends in 2029.
The Philippines has also set the higher end of its annual growth target at 8 per cent, though it widened the range last December in the wake of growing uncertainties both at home and around the world.
The nation now aims for a GDP expansion of between 6 and 8 per cent for 2025 to 2028. This is up from an earlier goal of 6.5 to 7.5 per cent for this year, and 6.5 to 8 per cent for 2026 to 2028.
The three other Asean majors are more conservative.
Malaysia on Mar 24 maintained its growth forecast for this year at 4.5 to 5.5 per cent, emphasising that this was despite a worsening global climate of geopolitical tensions, growing protectionism and tariff threats.
Neighbouring Thailand has its eye on economic expansion of 3.5 per cent, a threshold it last breached in 2018 and a whole percentage point away from last year’s real GDP growth of 2.5 per cent.
Singapore’s GDP growth forecast for 2025 was also left unchanged at 1 to 3 per cent – down from 4.4 per cent last year, and with a further caveat from the government that the estimate excludes the materialisation of downside risks.
That said, Trump’s latest tariff bombshell will likely scuttle official economic projections as countries scramble to manage the fallout.
Trouble in paradise
While these targets paint a rosy picture for the South-east Asian giants, reality is less so.
OCBC’s GDP growth forecasts for Vietnam and Indonesia are “well below” 8 per cent, senior Asean economist Lavanya Venkateswaran tells The Business Times, adding that the bank views the figure more as a medium-term goal for the authorities, rather than a target that can be hit within a single year.
She says Vietnam’s domestic growth outlook appears more promising, since the government’s focus is on bolstering public infrastructure projects, improving bureaucratic efficiency, and attracting foreign direct investments.
Indonesia’s near-term expansion looks weaker in light of recent policy announcements, she adds. These include significant budget cuts and a tax system update fraught with glitches.
“The focus of policies is becoming increasingly geared towards social expenditures and maintaining consumer purchasing power; infrastructure spending responsibilities seem to be diverted to the newly formed sovereign wealth fund, Danantara,” the OCBC economist says.
Trinh Nguyen, senior economist for emerging Asia at Natixis, agrees that Indonesia is the country to keep an eye on.
South-east Asia’s largest economy has been hovering around the 5 per cent growth threshold for several years now, she says, as its massive export sector stands at the mercy of fluctuations in commodity prices.
Noting that Prabowo is shifting the growth focus from infrastructure to social welfare, she adds: “How he is allocating resources is being watched by investors, as a key advantage of Indonesia is its low indebtedness. Whether his strategy will lead to sustainably higher growth or a higher debt burden remains to be seen.”
Double whammy
The US tariffs also spell big trouble for export-reliant South-east Asia.
The global landscape is already roiled by geopolitical unrest, uncertainty and evolving threats. Adding Trump to the mix brews a perfect storm – one that could cloud Asean’s future.
Chua Jen-Ai, an equity research analyst at Julius Baer, says: “We expect growth in 2025 to be driven by developments in the ongoing tariff and trade war, as well as existing weakness in Chinese economic growth.”
She agrees that an 8 per cent growth target may be a stretch in the current climate.
Before the latest reciprocal tariffs, consensus projections pegged the highest GDP expansions for 2025 at 6.7 per cent for Vietnam, 5.9 per cent for the Philippines, and 5 per cent for Indonesia, she notes.
She says the Philippines and Thailand could make mild improvements from their 2024 growth figures due to their undershooting last year’s projections.
And while economic expansion from the previous year is expected to remain “on an even keel” for Indonesia, the rate is projected to slow for Vietnam, Malaysia and Singapore – the Asean economies more exposed to external final demand and global trade, she says.
External final demand refers to the demand for goods and services by foreign consumers and businesses.
These three markets are also the most vulnerable to slowing growth in China, Chua adds, since, as a percentage of their GDP, they have the highest exposure to external final demand from the world’s second-largest economy.
“Although, in the same vein, attempts by Chinese policymakers to boost growth would also disproportionately benefit these markets,” notes Chua.
The effects of these cyclical and structural domestic headwinds, as well as the increasingly turbulent external environment, are already showing up in recent economic indicators.
Even as Asean governments process the latest round of tariffs, analysts agree that in the long term, the region is likely to weather the storm with its trademark resilience.
With their growth targets becoming more distant as the outlook gets murkier, the countries must now meet their latest challenge head-on to emerge stronger from the turmoil.
