Southeast Asian economies began 2026 on diverging growth trajectories as technology-led output and exports, domestic demand, and public spending helped offset cooling momentum in several markets. Indonesia, Singapore, and Vietnam led regional growth, while Malaysia and Thailand continued to expand at a steadier pace. The Philippines was the main laggard as domestic challenges weighed on economic activity (Exhibit 1).1
Core growth engines remained supportive, although momentum softened from the late-2025 peaks. Exports continued to benefit from the global technology upcycle, particularly in electrical and electronics (E&E) products, while industrial activity was supported by technology-led manufacturing. Private consumption remained an important anchor, helped by festive spending in Indonesia and Vietnam, but it softened in several markets as inflation eroded real incomes. Capital flows remained broadly resilient, anchored by technology and manufacturing commitments, despite a more cautious global investment climate.
However, escalating Middle East tensions have introduced significant headwinds and exacerbated macroeconomic pressures. Inflation rose across most of the region as higher energy prices, supply chain disruptions, and currency weakness fed through to domestic prices, prompting divergent central bank responses. Regional currencies came under pressure from higher oil prices and a stronger US dollar, with the Indonesian rupiah, Philippine peso, and Thai baht among the weaker performers.
Looking ahead, the region’s growth foundations remain broadly stable, but signs of softening are becoming more evident as higher costs, currency volatility, and weaker external demand weigh on households and businesses. Sustaining growth will depend on Southeast Asia’s ability to contain these pressures while preserving domestic demand, investment confidence, technology-led output, and export momentum.
Regional economic overview
In this article, we focus on the economies of six countries in Southeast Asia: Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. We start by setting the scene with a regional overview (Exhibit 2).
In the following section, we focus on these six countries in Southeast Asia, examining their macroeconomic conditions and financial markets.
Indonesia
Indonesia’s economy expanded by 5.61 percent in the first quarter of 2026, its fastest growth in more than three years, boosted by a surge in government spending and strong household consumption during Eid festivities. Household consumption, which accounts for just over half of Indonesia’s economic activity, recorded its fastest growth since 2022. Export growth, however, continued to moderate as external demand weakened due to the Middle East conflict (Exhibit 3).
The government expects Indonesia’s growth to accelerate in the coming quarters to reach 5.4 percent in 2026, while Bank Indonesia forecasts growth of 4.9 to 5.7 percent. External analysts are more cautious, seeing first-quarter growth as likely to be the strongest of the year, with growth expected to slow in the coming quarters due to high energy prices and pressure on government finances.2
Macroeconomic outlook
GDP: In the first quarter of 2026, Indonesia’s economy experienced its fastest growth in more than three years, expanding by 5.61 percent. Among key sectors, manufacturing, trade and repair, agriculture, and construction expanded, while mining continued to contract. Accommodation and food services were the strongest performers within the services sector, supported by stronger travel spending during Eid festivities. On the expenditure side, all categories recorded growth, led by a 21.8 percent surge in government spending, attributed to holiday bonuses for civil servants and spending on the free-meal program in schools.3
Private consumption: Household consumption is a core driver of Indonesia’s economy, accounting for just over half of overall economic growth. It recorded its fastest growth since 2022, strengthening to 5.52 percent in the first quarter of 2026, up from 5.11 percent in the fourth quarter of 2025. Its strength in first-quarter private consumption was supported by robust spending during Ramadan and Eid festivities.4
Trade: Indonesia’s export growth moderated further to 0.90 percent in the first quarter, down from 3.25 percent in the previous quarter. Among key export categories, manufactured goods strengthened by 3.96 percent, whereas agriculture, forestry, and fishery products, and mining products declined sharply by 32.18 percent and 11.17 percent, respectively.5
Industrial activity: Manufacturing output moderated for a second consecutive quarter, with growth easing to 5.04 percent in the first quarter of 2026 from 5.40 percent in the previous quarter.6 The sector’s near-term outlook also appears weaker as Indonesia’s manufacturing PMI slipped into contraction territory in April 2026, falling to 49.1 from 51.2 at the end of the fourth quarter of 2025. This marked its first contraction in nine months, with weaker output, employment, and inventories coinciding with intensifying cost pressures and softer business confidence.7
Labor: The latest release of Indonesia’s National Labor Force Survey in February 2026 showed a slight improvement in the unemployment rate, which declined to 4.68 percent from 4.76 percent in February 2025.8 Despite this progress, structural challenges remain. Job creation continues to lag behind growth in the labor force, while workforce quality issues risk pushing more workers into the informal sector. About 60 percent of Indonesia’s workforce is already employed in the informal sector, where job security and income levels are less favorable.9
Inflation: Indonesia’s inflation rose to 3.48 percent at the end of the first quarter of 2026, which brought inflation closer to the upper bound of Bank Indonesia’s 1.5 to 3.5 percent target. The first quarter’s increase also marked the fourth consecutive quarter-end increase, with cost pressures continuing to follow the rupiah’s weakening, making imported raw materials more costly.10
Financial markets
Currency: The Indonesian rupiah depreciated by 1.7 percent in the first quarter, a steeper decline than the 1.1 percent fall in the previous quarter, before weakening further in April. With its decline by 3.6 percent year to date as of April 23, the rupiah is the second-worst-performing currency in the Asia–Pacific region after the Indian rupee. The slide reflected both external and domestic pressures: Middle East tensions and higher oil prices have driven investors to safe-haven assets, while local capital outflows have signaled concerns over Indonesia’s fiscal outlook and central bank independence.11
Policy rate: Bank Indonesia kept its policy rate unchanged through the first quarter of 2026 and again in April, maintaining the benchmark at 4.75 percent for a seventh consecutive meeting as it prioritized rupiah stability in the face of external volatility. The central bank also signaled its readiness to step up both onshore and offshore foreign exchange intervention to curb currency weakness and keep inflation within its 2026 to 2027 target range.12
Capital flows: Foreign direct investment (FDI) into Indonesia grew for a second consecutive quarter, rising 8.1 percent to 249.9 trillion rupiah (US $14.5 billion) in the first quarter of 2026. Singapore remained the largest foreign investor with US $4.6 billion in investments, followed by China, Japan, Hong Kong, and the United States. Key recipient sectors included basic metals and metal goods manufacturing, mining, real estate, transportation, and telecommunications sectors, underscoring Indonesia’s continued focus on downstream industries and infrastructure segments. Strong FDI inflows helped Indonesia slightly exceed its first-quarter overall investment target—a solid performance despite a challenging investment climate shaped by geopolitical uncertainty and trade tensions.13
Malaysia
Malaysia’s economy expanded at a slower pace in the first quarter of 2026 as the Middle East conflict began to test the country’s resilience. GDP growth moderated to 5.4 percent from 6.3 percent in the fourth quarter of 2025, with strong exports supporting growth. Domestic demand remained a key driver, underpinned by resilient labor market conditions (Exhibit 4). Headline inflation edged higher after staying steady for three consecutive quarters, reflecting early cost pressures linked to the conflict.
Malaysia expects its economy to remain resilient in 2026, with growth projected at 4 to 5 percent, although higher energy prices and supply chain disruptions remain key risks. Growth is expected to be supported by strong domestic demand, a firm labor market, and robust E&E demand driven by global technology expansion. Inflation is projected to remain manageable at 1.5 to 2.5 percent, with domestic policy measures helping to contain upward pressure from elevated global commodity prices.
Macroeconomic outlook
GDP: Malaysia’s GDP growth moderated to 5.4 percent year on year in the first quarter of 2026, easing from 6.2 percent in the preceding quarter, as sectoral momentum normalized. The services sector—the economy’s primary driver—saw growth moderate to 5.6 percent, largely due to a cooling in vehicle sales following the expiration of electric vehicle (EV) import duty waivers. Manufacturing growth remained resilient but declined slightly from 6.0 percent to 5.9 percent, buoyed by strong demand for AI and data center-related components within the E&E segment. While the construction and agriculture sectors also experienced softer growth of 7.7 percent and 2.6 percent respectively, the mining and quarrying sector recorded a 2.1 percent contraction due to maintenance-led declines in oil and gas production.14
Private consumption: Private consumption remained a key driver of Malaysia’s economic growth, supported by resilient labor market conditions and policy measures. However, growth moderated to 4.7 percent in the first quarter from 5.6 percent in the previous quarter.15 Looking ahead, consumer spending is expected to remain steady but cautious through 2026 against a backdrop of persistent global economic uncertainty, with households potentially shifting expenditure away from durable goods toward essentials.16
Trade: Malaysia’s trade activity remained resilient in the first quarter. Exports grew at an accelerated pace of 12.7 percent, up from 11.0 percent in the fourth quarter of 2025, propelled by the ongoing upcycle in the E&E segment. This robust performance effectively cushioned the impact of softer commodities shipments, including crude petroleum, liquefied natural gas (LNG), and agriculture. Import growth moderated to 7.7 percent in the first quarter from 11.7 percent in the fourth quarter of 2025, reflecting a broad moderation in demand across capital, intermediate goods, and consumption goods.17
Industrial activity: Malaysia’s manufacturing sector recorded a slight moderation in growth in the first quarter to 5.9 percent, down from 6.0 percent in the preceding quarter. Resilience in the sector continued to be underpinned by the global AI and data center boom, with sustained robust demand for high-end E&E components.18 Forward-looking indicators show further momentum, with the manufacturing PMI hitting a four-year high of 51.6 in April. Output expanded at its fastest pace since December 2021; however, this was partly driven by defensive “safety stocking” as firms braced for supply chain volatility stemming from the Middle East conflict. These disruptions have pushed input cost inflation to a 45-month high, causing business confidence to ease as manufacturers grapple with intensifying price pressures.19
Labor: Malaysia’s labor market remained resilient in the first quarter, with the unemployment rate holding steady at a low of 2.9 percent. Strengthening labor demand pushed total employment up by 0.1 percent to 16.8 million persons, with the services sector maintaining its position as the economy’s primary employer. While there was increased hiring in manufacturing, construction, and agriculture, the mining and quarrying sector experienced a marginal decline in its workforce.20
Inflation: After remaining steady at 1.3 percent for three consecutive quarters, headline inflation increased to 1.6 percent in the first quarter, reflecting early signs of higher global cost pressures, including from the Middle East conflict, as electricity charges and fuel prices picked up. These pressures were partly offset by lower core inflation as price increases for food away from home and rental costs moderated. Moving forward, headline inflation is expected to average 1.5 to 2.5 percent in 2026, with upward pressure from higher global energy and commodity prices partially contained by policy measures and limited demand pressures.21
Financial markets
Currency: The Malaysian ringgit demonstrated notable resilience, appreciating 0.5 percent against the US dollar in the first quarter, even as Middle East tensions spurred a global flight to the US dollar. This outperformance was underpinned by Malaysia’s robust growth momentum and steady foreign capital inflows. While shifting US monetary policy outlooks and regional conflicts have introduced volatility, the ringgit’s overall trajectory remains strong, securing a 3.3 percent gain against the US dollar on a year-to-date basis.22
Policy rate: Bank Negara Malaysia maintained its policy rate at 2.75 percent through its first three meetings of 2026, striking a balance between anchoring domestic growth and navigating external volatility. The central bank anticipates that inflation will remain manageable despite rising global costs, which suggests a stable monetary policy outlook for the remainder of the year.23
Capital flows: Malaysia recorded 22.8 billion ringgit (about US $5.8 billion) in FDI inflows during the first quarter, marking a steady 6.0 percent year-on-year growth. Despite a challenging global investment climate, this represents a resilient performance despite moderating from the previous quarter’s standout surge of 26.6 billion ringgit (a 48.7 percent year-on-year expansion). Inflows into the services sector, particularly information and communication technology (ICT), remained strong, with China, Hong Kong, and Singapore serving as the primary sources of capital.24
The Philippines
The Philippines’ economy grew by 2.8 percent in the first quarter of 2026, its slowest pace since the first quarter of 2021, when GDP contracted in the aftermath of the COVID-19 pandemic. A combination of domestic and external challenges weighed broadly on economic activity. Key growth drivers such as household consumption continued to moderate as higher inflation eroded purchasing power and weaker employment prospects dampened consumer confidence. Export growth also slowed (Exhibit 5). The Philippine peso tested record lows against the US dollar, prompting Bangko Sentral ng Pilipinas (the central bank) to reverse its policy stance and raise interest rates for the first time in more than two years to stabilize the currency and rein in inflation.
Looking ahead, the Philippines aims to accelerate infrastructure spending to support growth while extending targeted subsidies to cushion households from inflation and help sustain consumption. However, given the scale of domestic and external headwinds, the country’s 5 to 6 percent growth target for 2026 appears increasingly challenging to achieve and could be revised downward in the near term.25
Macroeconomic outlook
GDP: GDP growth slowed to 2.8 percent in the first quarter of 2026, marking the weakest quarterly performance in five years. The slowdown was driven by both domestic and external challenges, including delays in the passage of the national budget, which constrained public spending, including on infrastructure. The effects of recent graft investigations and the Middle East conflict weighed on consumer and business confidence and contributed to the slowdown.26
The services sector, which accounts for about two-thirds of GDP, saw growth moderate further to 4.5 percent from 5.2 percent in the previous quarter. The industrial sector, which makes up about a quarter of the economy, contracted again, shrinking by 0.1 percent during the first quarter. Agriculture, forestry, and fishing declined by 0.2 percent, weighed down by soaring energy prices.27
Private consumption: Household consumption, which accounts for more than 70.0 percent of the Philippines’ economy, eased further to 3.0 percent in the first quarter from 3.8 percent in the fourth quarter of 2025 and 4.1 percent in the third quarter. Inflation continued to weigh on purchasing power, while subdued consumer confidence, driven by uncertainty over employment and income prospects, further dampened household spending.28
Trade: After strengthening for three consecutive quarters to reach 13.2 percent in the fourth quarter of 2025, export growth moderated to 7.8 percent in the first quarter of 2026. Goods exports expanded by 13.3 percent, slowing from 22.8 percent in the previous quarter, but remained supported by robust performance in the E&E sector, machinery, consumer electronics, and telecommunications. Meanwhile, services exports grew by 3 percent during the quarter.29
Industrial activity: Manufacturing growth slowed to 0.5 percent in the first quarter, down from 1.6 percent in the previous quarter as momentum weakened across several key segments. Computers, electronics, and optical products were a bright spot, expanding by 11 percent, but a sharp slowdown in chemicals and petroleum products slowed growth. Food and beverage output and pharmaceutical production also contracted during the first quarter.30 The PMI slipped into contractionary territory in April 2026, falling to 48.3 from 51.3 in March, its first contraction since November 2025. New orders fell sharply, marking the steepest decline since mid-2020 as customers postponed purchasing decisions. Meanwhile, production levels stagnated and cost pressures increased due to higher energy and shipping costs.31
Labor: The labor market continued to soften in the first quarter, with unemployment rising to 5.0 percent from 4.4 percent in the previous quarter, marking the second consecutive quarterly increase. Rising energy prices continued to weigh on employment prospects in selected sectors. In response, the government remained committed to targeted support measures, including fuel subsidies and service contracting, to help cushion the labor market.32
Inflation: Inflation rose to 2.8 percent in the first quarter, up from 1.7 percent in the previous quarter. Price pressures have been trending upward as the Middle East conflict weighs on import-dependent economies such as the Philippines, particularly through higher energy and commodity costs. The outlook remains challenging, with inflation rising further to a three-year high of 7.2 percent in April. Reflecting these pressures, Bangko Sentral ng Pilipinas recently raised its inflation forecast to 6.3 percent from 5.1 percent previously.33
Financial markets
Currency: The Philippine peso weakened by 3.0 percent against the US dollar in the first quarter, after depreciating 1.3 percent in the previous quarter, and came under further pressure in late April and mid-May. The peso fell to a record low past the 61-per-dollar mark as a stronger US dollar weighed on Asian currencies, with hawkish signals from the US Federal Reserve boosting demand for the greenback.34
Policy rate: Bangko Sentral ng Pilipinas cut its policy rate by 25 basis points in February 2026, but reversed course in April with a 25 basis-point hike, its first increase in more than two years. The shift reflected mounting inflation risks, with the central bank warning that headline inflation could exceed its 2 to 4 percent target range in both 2026 and 2027. As the Philippines relies heavily on Middle Eastern oil imports, rising energy prices linked to the conflict in Iran have worsened the inflation outlook, pushing up transport, food, and utility costs, and prompting Bangko Sentral ng Pilipinas to adopt a more hawkish stance.35
Capital inflows: Foreign investment approvals in the Philippines recorded a 52.3 percent year-on-year increase in the first quarter, though this growth was largely driven by a low base effect from 2025. In absolute terms, the first quarter marked the lowest investment volume over the past four quarters, reflecting dampened investor sentiment in response to geopolitical uncertainties, escalating costs, and softer domestic growth. This performance is a sharp deceleration from the fourth quarter of 2025, which saw a 79.1 percent year-on-year expansion and double the absolute value of approved investments. By sector, manufacturing remained the primary recipient of foreign capital, bolstered by a robust rebound in the accommodation and food services sector. Conversely, investments in the energy sector contracted significantly during the quarter.36
Singapore
Singapore’s economy started 2026 on a positive note, with first-quarter GDP growth accelerating to 6.0 percent from 5.7 percent in the previous quarter in 2025. Growth was broad-based across all sectors, supported by strong manufacturing and services activity. However, non-oil domestic exports and industrial output showed softer momentum despite continued robust demand for AI-related electronics (Exhibit 6). Investments remained solid, although growth moderated from the exceptionally strong expansion recorded in the fourth quarter of 2025. Inflation edged higher as the effects of the Middle East conflict began to feed through to the economy, prompting the Monetary Authority of Singapore to tighten its monetary policy for the first time since 2022 to contain price pressures. Singapore has since revised its inflation outlook upward but maintained its 2026 growth forecast at 2 to 4 percent, despite acknowledging heightened downside risks from the conflict.
Macroeconomic outlook
GDP: Singapore’s economy expanded by 6.0 percent year on year in the first quarter of 2026, accelerating from 5.7 percent in the previous quarter. Growth was broad-based, with wholesale trade, manufacturing, and finance and insurance emerging as the top contributors.
Across key industry groups, manufacturing continued to benefit from strong demand for AI-driven electronics, although growth eased to 7.9 percent from 11.4 percent in the previous quarter as slower output in chemicals and biomedical manufacturing partly offset continued strength in electronics. Growth in the services sector accelerated to 5.7 percent from 4.8 percent, supported by expansion across all services segments. Construction also grew stronger, rising by 11.8 percent from 4.6 percent as both public and private construction output increased.37
Private consumption: Private consumption growth moderated to 3.5 percent in the first quarter, down from 4.5 percent in the previous quarter. Rising inflationary pressures linked to the Middle East conflict eroded real incomes and weighed on household spending.38
Trade: Singapore’s total merchandise trade growth accelerated to 25.6 percent in the first quarter, up from 14.5 percent in the previous quarter. However, growth in the key non-oil domestic exports segment moderated to 9.6 percent from 12.7 percent previously. An ongoing AI-driven demand boom continues to fuel robust global demand for electronics, particularly in semiconductors, integrated circuits, disk media, and PCs, which has anchored the nation’s export engine even as demand for non-electronic products softens.39
Industrial activity: Manufacturing output grew by 7.9 percent in the first quarter, easing from 11.4 percent in the fourth quarter of 2025. Growth was driven by the AI-related electronics segment, which expanded by 26.1 percent, alongside higher activity in the precision engineering and transport engineering clusters. However, chemicals output contracted amid supply chain disruptions, and biomedical manufacturing declined by 24.1 percent as global demand softened and production fell.40 The PMI remained in the expansionary territory throughout the first quarter, rising to 57.9 in April 2026 from 54.1 in December 2025. Factory activity remained strong despite elevated cost pressures, supported by notable improvements in new orders and output.41
Labor: Singapore’s unemployment rate rose slightly to 2.1 percent in the first quarter from 2.0 percent in the fourth quarter of 2025. Retrenchments remained broadly unchanged, although fewer jobs were created compared with the previous quarter.42 Looking ahead, hiring expectations will likely remain cautious and uneven as AI possibly reshapes the labor market. Optimism is likely to remain in stronger-performing sectors and growth areas, such as electronics, digital and AI, and healthcare. Export-oriented and consumer-facing sectors affected by geopolitical challenges and inflationary pressures, such as petroleum and food and beverages, could face continued headwinds.43
Inflation: Inflation rose to 1.5 percent in the first quarter, up from 1.2 percent in the previous quarter. Most expenditure categories recorded higher price increases, with healthcare and transportation costs experiencing the largest upticks. This was partly offset by price moderation in education, clothing and footwear, and information and communications.44 Price pressures are expected to remain elevated in the coming quarters as higher energy prices and supply chain disruptions from the Middle East conflict feed through to the economy. Reflecting these risks, the Monetary Authority of Singapore has raised its 2026 inflation forecast to 1.5 to 2.5 percent from the previous 1.0 to 2.0 percent.45
Financial markets
Currency: The Singapore dollar traded within a narrow range and remained firm against the US dollar in the first quarter. After appreciating by 6.2 percent against the greenback in 2025, the currency carried some of this momentum into January 2026, reaching an 11-year high against the US dollar by the month’s end. It subsequently moderated, ending the first quarter broadly unchanged from where it started.46
Policy rate: The Monetary Authority of Singapore maintained its monetary policy stance in January 2026 before tightening policy in April by allowing the Singapore dollar to appreciate at a slightly faster pace. This marked its first tightening since 2022, aimed at cushioning the impact of higher energy prices linked to the Middle East conflict. The conflict could weigh on Singapore’s growth this year, while inflation is expected to remain elevated in the coming quarters, prompting the Monetary Authority of Singapore to revise its inflation forecasts upward for 2026.47
Capital inflows: Singapore recorded net FDI inflows of 55.7 billion Singapore dollars (US $43.5 billion) in the first quarter, a slight decline from the 58.6 billion Singapore dollars registered in the previous quarter. On a year-on-year basis, this represented a solid 12.1 percent expansion, though it marked a moderation from the 43.6 percent surge seen in the fourth quarter of 2025.48 Despite the quarter-on-quarter dip, the city-state remains a highly attractive destination for capital and continues to serve as a stable regional refuge and growth hub, offering investors strong governance, predictability, and strategic access to broader Southeast Asian opportunities.49
Thailand
Thailand’s economy recorded an unexpected growth acceleration in the first quarter of 2026, expanding by 2.8 percent compared to 2.5 percent in the previous quarter. This momentum was primarily driven by strong export performance in the E&E segment, which in turn boosted manufacturing output (Exhibit 7). Private investment strengthened significantly, while private consumption remained resilient.
The government maintained its full-year GDP growth forecast of 1.5 to 2.5 percent for 2026. This outlook is anchored by steady private consumption, strong exports, rising investment, and public spending, backed by a national borrowing plan to finance clean energy initiatives and ease cost-of-living pressures. However, economic momentum could temper in the second quarter due to the dampening effect of elevated energy prices stemming from the Middle East conflict.50
Macroeconomic outlook
GDP: Thailand’s economy grew by 2.8 percent year on year in the first quarter, accelerating from 2.5 percent in the fourth quarter of 2025. Among key sectors, manufacturing continued to strengthen, supported by stronger global demand for E&E goods, while the recovery in tourism activity helped lift accommodation and food services. Transportation and storage also recorded stronger performance, as did agriculture, forestry, and fishing. Construction was the main exception, with growth slowing owing to weaker government construction projects and softer private construction activity.51
Private consumption: Private consumption remained resilient, expanding by 3.2 percent in the first quarter, broadly steady from 3.3 percent in the fourth quarter of 2025. Growth was supported by higher spending across all categories, particularly nondurable and semidurable goods, while services and durable goods spending moderated. Consumer confidence improved slightly, rising to 52.8 from 52.3, suggesting that household sentiment remained relatively stable. For 2026, Thailand’s private consumption growth forecast was revised upward from 2.1 percent to 2.4 percent, supported by government relief measures, although it is still lower than the 2.7 percent growth attained in 2025.52
Trade: Export growth accelerated to 17.8 percent in the first quarter, marking one of Thailand’s strongest export expansions in years. E&E exports continued to be the major driver of growth—supported by the global tech upcycle—and recorded strong double-digit growth during the first quarter. In contrast, exports of automotive and transport equipment contracted. Exports to key trading partners, such as China, the European Union, other Southeast Asia countries, and the United States, continued to strengthen.53
Industrial activity: The manufacturing sector continued to recover in the first quarter of 2026, increasing to 0.9 percent, up from 0.3 percent in the previous quarter. Export-oriented manufacturing led the expansion, supported by strong gains in the computers and electronics segments. The PMI remained in expansionary territory throughout the first quarter, although it eased to 52.7 in April 2026 from 57.4 in December 2025. Production continued to expand, as did new orders, though growth in new orders slowed to an eight-month low as cost pressures from the Middle East conflict weighed on purchasing power.54
Labor: Thailand’s unemployment rate crept upward to 0.94 percent in the first quarter from 0.71 percent in the previous quarter. Long-term employment prospects remained a key concern as structural shifts from new technologies, such as gen AI and electric vehicles, could reshape the labor market and potentially disrupt over 8.7 million jobs. This highlights the urgent need to enhance worker productivity, accelerate upskilling initiatives, and implement proactive job-matching measures.55
Inflation: Headline inflation held steady at –0.5 percent in the first quarter of 2026, marking its fourth consecutive quarter in negative territory. Over the remainder of the year, inflation is projected to climb to an average of 2 to 3 percent, propelled by rising global energy costs and cost pass-through. In 2027, inflation is forecast to moderate to an average of 1.5 percent as supply-side pressures recede.56
Financial markets
Currency: The Thai baht depreciated by 4.2 percent against the US dollar in the first quarter of 2026, making it one of the worst-performing Asian currencies following the onset of the Middle East conflict. This marked a reversal from its strong appreciation in the fourth quarter of 2025, when it reached its highest level against the dollar in four years, raising concerns about the sustainability of those gains. The currency remained largely rangebound in April and May in 2026, although downside risks persist. Higher oil prices could further strain Thailand’s energy import balance and current account, while weak growth prospects may limit the Bank of Thailand’s ability to raise rates, leaving the baht vulnerable.57
Policy rate: The Bank of Thailand lowered its policy rate by 25 basis points to a multiyear low of 1 percent in February 2026, aiming to stimulate a slowing economy as inflation continued to ease. In April 2026, the bank opted to hold the rate constant. Policymakers judged the current rate sufficient to support growth, noting that inflation remains largely supply-driven and citing geopolitical risks from the Middle East. The bank remains in a monitoring stance ahead of its next meeting.58
Capital inflows: Thailand further built its strong FDI trajectory, amassing 965.9 million baht (US $30.2 billion) in FDI applications in the first quarter of 2026, compared with 267.7 million baht over the same period a year previously. Growth was led by investments in digital and AI-related projects, especially data centers and cloud services, with China, Japan, Singapore, and the United Kingdom being the top investors.59
Vietnam
Vietnam’s economy expanded by 7.83 percent year on year in the first quarter of 2026, easing from 8.46 percent in the fourth quarter of 2025. Supply-side growth was broad-based, with strong outputs in industry, construction, and services sectors, fueled by strong domestic festive consumption and a surge in international arrivals. On the demand side, foreign domestic investments further strengthened. The festive period supported stronger consumption, although exports growth moderated as businesses briefly paused operations. (Exhibit 8).
Looking ahead, Vietnam faces a more difficult external environment as higher energy prices and supply disruptions linked to the Middle East tensions raise inflation and strain economic management. These pressures could weigh on business costs and domestic demand, making the 10 percent full-year growth target for 2026 challenging, despite the government’s plans to step up public investment and diversify export markets and supply chains.60
Macroeconomic outlook
GDP: Vietnam’s economy increased by 7.83 percent year on year in the first quarter of 2026, easing from 8.46 percent in the previous quarter but still marking its strongest first-quarter growth in 16 years. Despite a challenging global backdrop, including Middle East tensions, growth was broad-based, led by industry and construction sectors at 8.92 percent and the services sector at 8.18 percent, supported by strong Lunar New Year spending and a sharp rebound in international arrivals. FDI remained a notable performer, although the ongoing external uncertainty could weigh on momentum in the quarters ahead.61
Private consumption: Final consumption growth strengthened to 8.45 percent in the first quarter, having moderated to 7.15 percent in the fourth quarter of 2025. Strong consumer demand during the Lunar New Year period and a rebound in tourism spending helped prop up consumption growth during the first quarter.62
Trade: Vietnam’s export growth moderated slightly to 19.1 percent in the first quarter, from 20.0 percent in the previous quarter. Monthly export performance remained robust, except in February when exports dipped as businesses paused operations during the Lunar New Year period. Computers, electronics, and machinery remained the main export drivers, accounting for nearly two-thirds of total exports, while textiles and footwear contributed 15.9 percent. The United States absorbed nearly half of Vietnam’s exports, with China, Japan, and South Korea also remaining key destinations, together accounting for close to two-thirds of total exports.63
Industrial activity: Industrial momentum moderated in the first quarter, with growth in the Index of Industrial Production (IIP) easing to 9.0 percent from 9.9 percent in the previous quarter. A similar trend was seen in the manufacturing and processing segment, where growth slowed to 9.7 percent from 10.5 percent.64 Sitting at 50.5 in April 2026, Vietnam’s PMI remained in expansionary territory but marked its lowest reading since September 2025, a sharp pullback from the robust 53.0 recorded at the end of 2025. The slowdown reflected the first contraction in new orders in eight months and a steep drop in export sales. Manufacturing activity was hit by the strongest input cost inflation in 15 years, driven by higher fuel and transport costs. Additionally, supply disruptions linked to Middle East tensions weakened sentiment and prompted firms to reduce jobs and inventories.65
Labor: The labor market remained stable in the first quarter, with the unemployment rate improving slightly to 2.21 percent from 2.22 percent in the fourth quarter of 2025. Wages continued to grow, but at a slower pace compared with the previous quarter.66
Prices: Inflation inched up slightly to 3.51 percent in the first quarter of 2026 from 3.44 percent in the fourth quarter of 2025. Housing and construction materials experienced the largest rise of 5.69 percent, followed by the food category.67 In April, Vietnam’s finance ministry cautioned that inflation could rise to as high as 5.5 percent in 2026, in contrast to the 4.5 percent forecast at the start of the year, driven by upward pressures on fuel, shipping, and import costs following the conflict in the Middle East.68
Financial markets
Currency: The Vietnamese dong was broadly stable against the US dollar and saw little change in the first quarter of 2026. However, after depreciating by 3.5 percent in 2025, the currency may face pressure from complex and unpredictable global developments and domestic challenges, with the State Bank of Vietnam pledging to act with the aim of stabilizing the dong and ensuring stability in the foreign exchange market.69
Policy rate: The State Bank of Vietnam maintained its policy rate in the first quarter, leaving rates unchanged since June 2023. Concurrently, it injected liquidity into the banking system through open market operations and issued an urgent directive to stabilize borrowing costs, reflecting concerns that rising funding costs could push up lending rates and weigh on credit growth, business activity, and the broader economy.70
Capital inflows: Foreign investment inflows into Vietnam surged by 42.9 percent year on year in the first quarter of 2026 to reach 400 trillion dong (approximately US $15.2 billion). Disbursed FDI, meanwhile, expanded by 9.1 percent year on year to 142 trillion dong, the highest first-quarter figure recorded in the past five years. The manufacturing and processing sector attracted the majority share of FDI, underscoring Vietnam’s strong positioning as a leading manufacturing hub in the region.71
