APAC CIO View

Pre-Liberation Day, the ASEAN region was one of the key focus regions in Asia for investors outside of China, sparking widespread debate about their prospects under the new America First Trade Policy. Some believed the region would benefit from supply chain diversification, given expectations of relatively lower U.S. tariffs, while others worried ASEAN could face scrutiny for transshipment of Chinese goods to the U.S. Despite these external challenges, most ASEAN developing countries delivered stronger-than-expected economic growth in Q3, with the exception of the Philippines and potentially Thailand. This article provides a high-level examination of the factors driving this growth narrative against the backdrop of global trade uncertainty.

Figure 1: ASEAN Developing Countries Real GDP Growth Year-over-Year (YoY%)

Source: Bloomberg, as of November 9, 2025.

Lower than Headline Effective Tariff

The first reason for ASEAN’s resilient economic growth is that the external shock from U.S. tariffs turned out to be milder than initially expected. On Liberation Day, when the reciprocal tariffs were announced, markets were rattled by headline rates ranging from 17% to 46% for ASEAN countries—especially Vietnam, where exports to the U.S. account for roughly one-quarter of its 2024 nominal GDP. However, subsequent negotiations in June and July led to a significant reduction, with most countries securing an average tariff of around 20%. In addition, large portions of exports received exemptions: over 60% of Malaysian goods and more than 40% of exports from Thailand and Vietnam are now exempt from U.S. tariffs. These exemptions have substantially lowered the effective tariff rate compared to the headline figures. While the effective rate still represents a material increase from early-year levels, the impact has been far less severe than markets feared—evidenced by manufacturing PMI trends, which fell sharply after Liberation Day but rebounded later in the summer.

Figure 2: Comparison of Liberation Day Tariff, Headline Tariff and Effective Tariff Rate of ASEAN Developing Countries

Source: Bloomberg, as of November 9, 2025.

Figure 3: Manufacturing PMI of ASEAN Developing Countries: YTD 2025

Source: Bloomberg, as of November 9, 2025.

Accommodative Fiscal and Monetary Policy

Robust economic growth across ASEAN markets has supported an improvement in fiscal balances, with deficit-to-GDP ratios narrowing on the back of stronger GDP growth. The resilience may have been reinforced by the continued accommodative stance of fiscal and monetary policy across the region. While most ASEAN countries maintain fiscal deficit targets and control measures, improved fiscal conditions in recent years have created room for more expansionary policies. For example, the Malaysian government had invested a total of USD 35 billion to fund 143 data center investment projects since 2021, culminating towards the AI Nation 2030 plan.¹ Likewise, the Indonesian government introduced a broad set of measures targeting multiple social demographics. This includes the USD 28 billion free meal program for students², alongside a USD 1.5 billion fiscal stimulus package in June 2025, which included salary and social aid top-ups, as well as toll discounts.³ The policy mix appears to have helped anchor domestic support for GDP growth. Yet, Thailand stands out as the only ASEAN economy to withdraw its fiscal stimulus. Thailand shelved its USD 15 billion “Digital Wallet” scheme in June 2025, following criticisms that one-off cash payments were not the right antidote for Thailand’s economic woes.⁴ Thailand faces mounting structural headwinds, as ongoing trafficking-related security concerns coincide with its dependence on good and service exports, particularly tourism.

On the monetary side, central banks have provided ample liquidity to support economic growth in anticipation of the trade disrup-tion and to address tepid domestic growth. Vietnam perhaps is the only ASEAN country which have kept rates unchanged this year, but senior officials has recently vouched to prioritize economic growth and called for further cuts on commercial banks’ lending interest rates. Although more recently these ASEAN economies have slow-down their pace of rate cuts, the outlook is more hawkish in nature as most of them have acknowledge the needs to support economic growth and see room for further interest rate reduc-tions. As a result, the outlook on monetary policy in ASEAN is expected to remain more expansionary. 

This combination of fiscal flexibility and supportive monetary policy may have helped most of the ASEAN economies cushion the impact of external shocks and sustain domestic demand. In addition, the ASEAN election cycle remains relatively distant, with Vi-etnam’s next general election scheduled for 2026, and most other economies will not head to the polls until 2027 or later. This pro-vides a temporary window of political stability for expansionary fiscal and accommodative monetary policies.

Social Unrest Hinged on Growth and Confidence

Despite supportive fiscal and monetary policies, recent political decisions have triggered social unrest, weighing on investor sentiment. In Indonesia, unpopular perks for lawmakers and President Prabowo’s heavy-handed response to protests in August and September slowed private investment growth from 6.99% in Q2 2025 to 5.04% in Q3. In the Philippines, a corruption scandal tied to flood-control projects sparked mass demonstrations, driving investment growth down from 1.2% in Q2 to -2.8% in Q3. Malaysia faced large-scale rallies against Prime Minister Anwar Ibrahim over rising living costs and unmet reform pledges, while Thailand continues to grapple with trafficking-related security concerns, compounded by official complicity, which is dampening tourism. Collectively, these developments point to a growing risk that persistent social unrest will erode business and consumer confidence, creating headwinds for ASEAN’s growth outlook in 2026.

Cloudy Outlook in 2026

Although ASEAN economies have demonstrated resilience amid external trade challenges and supportive policy measures, the out-look for growth remains clouded by rising social unrest and weakening investor confidence. These headwinds suggest that there could be further downside risks as we move into 2026. Against this backdrop, we maintain a more cautious and selective approach toward ASEAN markets, favoring countries with solid domestic fundamentals and stronger policy credibility.