US Tariffs Could Drag ASEAN-5 GDP Growth To 1.5 Pct In 2026 -- Economist

KUALA LUMPUR, July 17 (Bernama) -- ASEAN-5 gross domestic product (GDP) growth is projected to fall to just three per cent in 2025 and as low as 1.5 per cent in 2026 if knock-on effects from the United States (US) tariffs continue, said Bloomberg Southeast Asia economist Dr Tamara Mast Henderson.

This compares with the 4.5 per cent growth figures in 2024, Henderson said, adding that the knock-on effects include reduced investment flows, weakening exports and declining business confidence.

ASEAN-5 economies are Indonesia, Malaysia, the Philippines, Singapore and Thailand.

"More of the disruptive effects will be coming from investments in 2025, less so from exports," she said, as cited by CIMB Securities Sdn Bhd in a note on Wednesday.

Henderson also noted that foreign direct investment (FDI) would face increased competition in the region, as the US ramps up efforts to bring manufacturing and production back onshore, with investor flows expected to be increasingly diverted away from Southeast Asia. 

"This re-shoring push will likely 'suck up' capital that would otherwise have gone to developing Asian markets, creating tough competition for remaining FDI," she said.

She is concerned that Malaysia will be in a precarious position, with 7.5 per cent of its GDP derived from exports to the US, and overall exports representing more than two-thirds of its economy. 

"The country faces a 25 per cent tariff, and owing to its close ties with China — including several memoranda of understanding (MoUs) and its participation in BRICS-related initiatives — these tariffs are unlikely to be lowered," she opined.

Other than trade shocks, Malaysia’s crude oil production has been slowing over the years. This is an added negative to the softening oil prices, which will dent government revenues and scope to support the domestic economy.

"Malaysia’s key export sector, electrical equipment, is particularly vulnerable," she said.

Henderson projects Malaysia’s GDP growth to fall below four per cent in 2025, with even weaker GDP growth possible in 2026 should tariffs remain in place.

As for the US, she said the world's largest economy is also expected to suffer economically, as the higher tariff regime will increase input costs, reduce domestic demand, and lead to slower GDP growth. 

"Additionally, it will limit the Federal Reserve’s ability to cut interest rates in the short term, creating a difficult macro policy environment," she said.

-- BERNAMA