Financial markets
Macroeconomic outlook
Investment commitments saw mixed outcomes as companies took a more cautious stance, given ongoing geopolitical headwinds and macroeconomic uncertainties. Thailand and Vietnam were the region’s investment hot spots in the first quarter, seeing double-digit growth in investments year-on-year. Thailand saw strong interest from high-tech sectors, including data centers, while Vietnam continued to anchor its position as a key manufacturing hub. Indonesia, meanwhile, saw FDI growth moderate as key mining sector investments underperformed due to weaker global demand for commodities and the introduction of higher mining royalties. The Philippines saw its lowest FDI inflow since the third quarter 2023. (Key indicator details can be found in Exhibit 2.)
Capital flows
As concerns over a potential economic slowdown arose and inflation under control, central banks in the region adopted more accommodative monetary policy stances in the year to May. Both Indonesia and Thailand announced two rate cuts during the period, with the aim of stimulating stronger economic performance. The Philippines held rates in the first quarter but became the first country in the region to cut rates following the US “Liberation Day” announcement in early April. Singapore eased its monetary stance in January—the first time in nearly five years—and again in April. Malaysia and Vietnam acknowledged the downside risks in its economies but maintained their policy stances as they remained aligned with growth and monetary objectives.
Interest rates
Most Southeast Asian currencies strengthened against the US dollar in the first quarter as concerns over a tepid economic growth outlook in the United States weakened the US dollar. The Singapore dollar, recognized as a regional haven for its stability and strong fundamentals, was one of Asia’s strongest-performing currencies. The Malaysia ringgit and Philippines peso strengthened too, while the Thai baht was range-bound. The Indonesia rupiah declined to its lowest level against the US dollar since the Asian financial crisis in 1998 over concerns regarding the country’s economic policies and financial health. The Vietnam dong also weakened given its high vulnerability to US tariff action.
Currency
Inflation eased further across the region in the first quarter, apart from in Thailand and Vietnam, which both saw minor upticks in prices. Overall, softer consumer demand, coupled with government subsidies and price reduction policies, led to slower price increases. The region’s central banks and governments expect inflation to remain under control and within their target ranges for 2025. In fact, the first quarter saw the Philippines and Singapore lower their respective inflation forecasts for the year.
Prices
Apart from the Philippines, which saw stronger private consumption growth in the first quarter, the rest of the region experienced softer consumption levels. Indonesia’s consumption growth was the slowest it has attained in the past five quarters, while Singapore saw growth moderate for the third consecutive quarter. Despite the low-inflationary environment throughout the region, weaker economic prospects and softer labor conditions in some markets such as Singapore likely drove consumer confidence lower, leading to a tightening of belts or less purchasing power for consumers.
Private consumption
Industrial growth showed mixed expansion: Indonesia, Malaysia, Singapore, and Vietnam saw slower growth, while industrial activity accelerated in the Philippines and Thailand. Global demand for electronics continued to buoy economic performance across the region. However, specific markets were dragged down by pockets of sector weakness; biomedicals underperformed in Singapore, while the mining sector dragged production growth in Vietnam. Meanwhile, the Purchasing Managers’ Index (PMI) provided mixed readings at the end of the first quarter: Indonesia, Singapore, and Vietnam were in the expansionary zone, while Malaysia, the Philippines, and Thailand landed in the contractionary range. April brought a sharp contraction throughout the region, except for the Philippines. The fallout from tariff uncertainty dampened demand and business confidence, as firms scaled back or canceled orders, impacting output, new orders, employment, and purchasing activities.
Industrial activity
After the strong growth in 2024, trade appeared to have lost some momentum in the first quarter 2025. Weak global demand in core export sectors, such as mining for Indonesia and Malaysia and textile manufacturing for Vietnam, led to slower exports growth. Thailand, however, continued its turnaround story, seeing its highest rate of export growth in the past 13 quarters. The Philippines and Singapore, the two nations accorded the lowest US tariff rates in Southeast Asia, saw stronger exports performance. Tariff uncertainty has impacted the region, and future trade performance could come under continued pressure as a result.
Trade momentum
The first quarter 2025 turned out to be a soft start to the year for Southeast Asia’s economies, as escalating trade tensions and heightened policy uncertainty took a toll on the region’s performance. GDP growth moderated in almost all analyzed countries, except for the Philippines, which achieved a marginal growth uptick of 0.1 percent. Malaysia and Singapore saw their quarterly year-on-year growth moderate for the second time in a row, while Indonesia posted slower growth of 4.9 percent, well below the government’s 8.0 percent growth target. Vietnam continued to be the region’s best-performing economy with 6.9 percent growth; however, this is lower than the 7.0 percent (or above) growth it achieved through most of 2024.
The challenging economic climate has led to the Philippines and Singapore recently revising downward their respective growth forecasts for 2025. Malaysia is expected to disclose its growth forecast once the global macroeconomic situation becomes clearer.
GDP
FDIs saw mixed outcomes
Central banks turned dovish
Most currencies strengthened
Inflation further eased
Private consumption softened
Mixed quarter, sharp contraction in April
Trade lost some momentum
Economic growth moderated
Labor markets broadly stable
Labor market conditions remained broadly stable, with Southeast Asia markets having recovered to pre-COVID-19 levels. In Malaysia, labor participation is at a historic high and unemployment continues to improve. Thailand is experiencing its lowest unemployment rate in the past ten years. The Philippines and Singapore, however, saw their labor markets soften, with businesses taking a more cautious approach to hiring given the uncertain economic environment.
Labor