Financial markets
Macroeconomic outlook
Investment commitments surged in the fourth quarter as investor and business sentiment stabilized across the region, following a year shaped by geopolitical and macroeconomic uncertainties. All countries rallied to a strong year-end finish, with Malaysia and Thailand experiencing robust rebounds, driven by investments in high-value sectors such as information, communications, and technology (ICT), financial services, and electronics. The Singapore economy remained resilient, attracting stable inflows from global investors, particularly in electronics and biomedical manufacturing. Indonesia experienced a modest recovery, with growth concentrated in the base metal and mining sectors, although overall momentum for the year remained subdued. Vietnam’s annual foreign direct investment (FDI) flow improved slightly in 2025, but disbursed FDI was at its highest in five years. The Philippines delivered a rebound late in the year, but recorded a sharp annual decline in FDI approvals, with investor confidence dampened by domestic challenges.
Capital flows
Following a dovish policy stance in the third quarter, the majority of central banks held rates steady in the fourth quarter as economic conditions improved and to allow the effects of earlier cuts to take hold. The Philippines and Thailand were exceptions, cutting rates further to stimulate their economies. The Philippines implemented two rate cuts in the fourth quarter, and Thailand cut rates once; both countries followed with additional cuts in February 2026, bringing their policy rates to three-year lows. Looking ahead, central banks across the region are expected to leave the door open for further rate cuts if needed, balancing support for economic growth with inflation management.
Interest rates
Southeast Asian currencies delivered mixed performances against the US dollar in the fourth quarter. The Malaysian ringgit emerged as the region’s best-performing currency, appreciating on the back of strong economic fundamentals and easing external risks. The Thai baht also strengthened, reaching its highest level in four years, although its sharp appreciation has raised concerns about the sustainability of the currency’s strength. The Singapore dollar and the Vietnamese dong remained rangebound during the fourth quarter, with the Singapore dollar reaching an 11-year high by the end of January 2026. In contrast, the Indonesian rupiah and the Philippine peso depreciated, weighed down by domestic fiscal and governance challenges.
Currency
Inflation in most countries in Southeast Asia edged higher in the fourth quarter but remained within national targets. While Malaysia’s prices held constant and Thailand experienced mild deflation, other countries saw minor price upticks, driven by a mix of cost pressures across expenditure categories, including food, healthcare, and transport. Although inflation has been relatively benign for the past two years, the outlook is becoming more challenging due to potential fuel and supply chain disruptions emanating from the conflict in the Middle East.
Prices
Private consumption remained a primary driver of regional growth, with strong expansion across most of Southeast Asia in the fourth quarter. Growth accelerated notably in Indonesia, Malaysia, and Thailand. However, the trend was not universal across the region. The Philippines saw household consumption slow to its weakest pace since early 2021 amid flagging consumer confidence, and Vietnam's consumption growth, albeit still strong, moderated from the third quarter.
Private consumption
Industrial production across Southeast Asia experienced a robust rebound in the fourth quarter, driven by stronger global demand and domestic activity. Singapore was the standout performer, with its manufacturing output surging threefold from the third quarter, propelled by strong growth in the pharmaceuticals sector and the AI-related electronics sector. Malaysia, Thailand, and Vietnam also saw output accelerate, backed by resilient external demand and recovering domestic consumption. Recovery was less pronounced elsewhere—the Philippines registered only a slight improvement, and Indonesia’s manufacturing output continued to moderate for the second consecutive quarter. The purchasing managers’ index (PMI) strengthened across the region, with all countries ending the quarter firmly in expansionary territory.
Industrial activity
Regional trade momentum strengthened in the fourth quarter, propelled by strong global demand for electronics. This was most evident in Singapore, which staged a strong turnaround as its key non-oil domestic exports (NODX) reversed the third quarter’s contraction to post double-digit growth. Exports also increased notably in Malaysia and the Philippines, while Vietnam’s performance remained exceptionally resilient, with growth strengthening further to 20 percent.
This strong upward trend was not universal, however. While still benefiting from the demand for electronics, Thailand’s overall export growth cooled from its previous pace. Indonesia experienced the most significant moderation, with exports slowing due to the combined effects of tariffs and normalizing commodity prices.
Trade momentum
Southeast Asia’s economies ended 2025 on a strong note, with growth accelerating across most of the region in the fourth quarter. Vietnam led the charge, with its economy expanding more than 8 percent, and Indonesia experienced its fastest growth in over two years. Malaysia and Singapore gained notable momentum, driven by strong performances in their manufacturing and services sectors. On the other hand, the Philippines experienced a significant slowdown, with its GDP falling to 3 percent, the weakest performance since the COVID-19 pandemic, as domestic issues dented consumer and business confidence. While Thailand’s economy rebounded from a soft third quarter, its growth remained modest compared with its regional peers.
GDP
FDI rebounded
Majority held rates
Divergent currency movements
Inflation edged higher
Consumption stayed robust
Industrial activity rebounded
Exports strengthened significantly
Broadly stronger finish
Stable labor markets
Labor markets across Southeast Asia remained broadly stable in the fourth quarter, with unemployment anchored at low single digits and experiencing minimal shifts. The Philippines was an exception, with unemployment rising to 4.4 percent, from 3.8 percent, due to a slowdown in the construction sector. While overall labor conditions in the region appeared stable in the fourth quarter, hiring could become more selective as companies adopt a more cautious outlook. Looking ahead, deeper structural reforms will be necessary to address market-specific issues, such as youth unemployment, and to prepare the workforce for the growing impact of AI.
Labor
Footnote
“Queues, price hikes and shortages as Asia battles fuel crunch amid Mid-East crisis,” Straits Times, March 7, 2026.
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