Southeast Asian economies recorded slower growth in the first quarter 2025 as trade tensions and policy uncertainties impacted growth drivers. Apart from the Philippines, which attained a marginal 0.1 percent uptick in economic growth in the first quarter, all other Southeast Asian economies saw their growth moderate. Vietnam remained the region’s best-performing economy, despite posting its slowest growth for the past three quarters. Malaysia and Singapore saw their quarterly year-on-year growth moderate for the second time in a row, while Indonesia remained below the government’s 8 percent growth target (Exhibit 1).
Core growth drivers softened: Exports, industrial activity, and investments all showed signs of slowing in the first quarter as market players turned more cautious. Consumption is also less robust despite the low-inflationary environment.
Countries in the region appear to be recalibrating their growth expectations for 2025 given heightened market turmoil. The Philippines and Singapore have revised downward their growth targets for 2025, while Malaysia is expected to disclose new growth forecasts once the macro-environment stabilizes. With a challenging growth outlook, central banks in the region may continue to adopt accommodative monetary policies to support their economies, continuing the trend of the first five months of 2025.
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.
In the following section, we focus on these six specific countries in Southeast Asia, examining their macroeconomic conditions and financial markets.
Indonesia
Indonesia recorded a soft start to the year with GDP growing by 4.87 percent in the first quarter 2025; its slowest pace of growth in the past three years.1 Household consumption was tepid despite the first quarter typically seeing healthy demand during the month of Ramadhan and Eid al-Fitr festivities. Exports growth weakened as global macroeconomic uncertainties impacted demand (Exhibit 3). Production activities and investments saw growth moderate, while the rupiah slumped to its lowest level against the US dollar since the Asian financial crisis of 1998. The currency remains under pressure. Despite a tough quarter, employment and prices held steady (Exhibit 3).
The softer economic performance could put a dent in President Prabowo’s pledge to lift Indonesia’s economy and achieve 8 percent annual growth. Indonesia’s economic growth has hovered around 5 to 6 percent post-Covid and now faces further challenges from slowing global growth and tariff uncertainty, weakening domestic demand, and a tighter budgetary position.2
Macroeconomic outlook
GDP: Indonesia’s economic growth slowed to 4.87 percent in the first quarter 2025, down from 5.02 percent in the fourth quarter 2024. The mining and quarrying sector contracted by 1.23 percent following a drop in coal prices and weaker international demand. Agriculture, meanwhile, saw the largest growth at 10.52 percent, driven by stronger rice and corn harvests, coupled with increased local demand for food products such as meat and eggs during the fasting month of Ramadhan and Eid al-Fitr festivities. Other core sectors such as manufacturing, wholesale trade, and construction saw growth moderate.3
Private consumption: Household consumption growth moderated slightly to 4.89 percent in the first quarter 2025, from 4.98 percent year-on-year growth in the fourth quarter 2024.4 Household consumption continued to contribute more than half of overall GDP. However, the first quarter saw the slowest growth of the past five quarters, despite stronger consumer spending typically seen during Ramadhan and Eid al-Fitr festivities.5
Trade: Trade moderated in the first quarter 2025, with exports recording softer growth of 6.93 percent year-on-year, from 8.03 percent the previous quarter. Imports growth declined significantly to 1.47 percent year-on-year, down from 9.46 percent in the fourth quarter 2024. Exports of manufacturing and agriculture products grew 16.75 percent and 43.09 percent, respectively, compensating for the slowdown in mining exports, which shrunk 29.50 percent year on year.6 External demand for basic materials such as coal and nickel saw a slowdown, impacting the country’s exports in the segment.7 China remains Indonesia’s top exports market, with a 22.29 percent share, followed by the Association of Southeast Asian Nations (ASEAN) and the United States with a 20.29 percent and 11.60 percent share, respectively.
Industrial activity: Expansion in the manufacturing sector in the first quarter 2025 declined slightly to 4.55 percent year-on-year growth, from 4.89 percent in the previous quarter. Strong demand during the Ramadhan fasting month and Eid al-Fitr festivities provided support for food and beverage producers, leather manufacturers, and rice millers, while solid external demand for base metals such as steel drove production activities.8 PMI remained in the expansionary zone throughout the first quarter 2025, ending the quarter at 52.4, higher than the 51.2 attained at the end of the fourth quarter 2024. Operating conditions in Indonesia’s manufacturing sector were healthy, with growth in output and new orders, and employment and purchasing activities remained stable.9 However, April 2025 saw a sharp contraction in PMI, which fell to 46.7; the lowest since August 2021.10 The manufacturing sector saw weaker global demand due to the fallout from tariff actions. Local demand appeared to be softening, too.11
Labor: The latest release of Indonesia’s National Labor Force Survey indicated a slight improvement in the country’s unemployment rate: 4.76 percent in February 2025 versus 4.82 percent in February 2024. Broader employment metrics such as labor force participation, size of employed population, and underemployment all improved slightly in February 2025 compared to a year ago. The proportion of employees engaged in informal sectors remained high at close to 60 percent, following a minor increase in February 2025.12
Inflation: Indonesia’s inflation further moderated to 1.03 percent at the end of the first quarter 2025, from 1.57 percent at the end of the fourth quarter 2024.13 The first quarter also saw Indonesia record its first deflation reading in more than two decades, as prices shrunk by 0.09 percent year-on-year in February. Soft prices were attributed to government price reduction policies introduced during the first quarter to stimulate consumption and uplift the economy. These included substantial discounts on electricity prices as well as discounts on air fares and toll roads during the fasting month of Ramadhan.14 However, April’s inflation rose to 1.95 percent year-on-year, an eight-month high that brought inflation levels back within the central bank’s target range of 1.5 to 3.5 percent.15
Financial markets
Currency: Concerns over the sustainability of the country’s economic policies and financial health saw the rupiah slump to its lowest level against the US dollar since the Asian financial crisis of 1998. The rupiah fell more than 3 percent in the first quarter, with the central bank intervening in the bond and currency markets to ensure rupiah exchange rate stability and maintain market confidence.16 The rupiah has since seen further volatility and may continue to weaken as fragile investor confidence could trigger further capital outflows and put mounting pressure on the currency.17
Policy rate: In January 2025, the central bank lowered its policy rate by 25 basis points to 5.75 percent to stimulate economic growth.18 It subsequently held rates for the rest of the quarter as the market environment became increasingly uncertain, with the rupiah already near its lowest levels against the US dollar in the past five years.19 The central bank undertook further monetary easing in May 2025, cutting its policy rate by another 25 basis points to support economic growth.20
Capital flows: Following a stellar FDI performance in the fourth quarter 2024—which saw FDI grow by 33.3 percent year-on-year—FDI growth moderated to 12.7 percent year-on-year in the first quarter 2025. In absolute amounts, the first quarter inflow of US$13.7 billion (230.4 trillion rupiah) was US$940 million (15.8 trillion rupiah) less than fourth quarter 2024 figures. The base metals and mining sectors continued to drive FDIs, accounting for about a third of FDI share in the first quarter, while transportation, warehousing, telecommunications, and pharmaceuticals were the other top FDI contributors. Singapore was the top FDI contributor in terms of countries, with a third of FDI share, while Asian counterparts China, Hong Kong, Japan, and Malaysia rounded out the top five contributors.21
Malaysia
Despite its stronger annual economic growth in 2024, Malaysia’s quarterly economic performance continued to moderate. GDP growth in the first quarter 2025 was 4.4 percent year-on-year, lower than the 4.9 percent growth in the previous quarter and marking the third consecutive quarter of moderating growth. The services, manufacturing, and construction sectors grew slower in the first quarter, while the mining sector contracted faster. Household spending grew slightly slower although remains robust, with positive labor market and income-related policy measures providing support. Exports weakened, having had a steady turnaround during 2024 (Exhibit 4). The ringgit strengthened slightly while inflation remained low, with the central bank opting to keep rates on hold throughout the quarter.
Going forward, the central bank expects trade tensions and policy uncertainties to impact future growth, though resilient domestic demand could provide a buffer against external headwinds. Growth for 2025 is now expected to be slightly lower than the earlier forecast of 4.5 to 5.5 percent. The central bank is expected to release a new official growth forecast once the global trade situation becomes clearer.22
Macroeconomic outlook
GDP: Malaysia’s economic growth moderated to 4.4 percent in the first quarter 2025, from 4.9 percent in the fourth quarter 2024. Oil and gas production slowed, but sustained growth in household spending and public investment activities, and robust performance in export sectors such as electrical and electronics (E&E) and tourism cushioned the impact to support growth. From a sector point of view, services, manufacturing, and construction grew slower and the mining sector contracted further. Agriculture was a bright spark for the quarter, growing at 0.6 percent and reversing its previous quarter’s contraction.23
Private consumption: Private consumption continued to remain robust, though growth moderated in the first quarter 2025 to 5.0 percent, from 5.3 percent the previous quarter. Consumption remains supported by strong labor market conditions coupled with policy support measures such as civil-sector pay hikes and minimum wage revisions.24
Trade: Malaysia’s trade activities further moderated in the first quarter 2025. Exports grew slower at 4.1 percent, compared to the 8.7 percent growth recorded in the previous quarter, in line with a slowdown in mining exports. The E&E sector, meanwhile, continued to be the key export sector for Malaysia. On the imports front, growth slowed to 3.1 percent from 5.9 percent the previous quarter, with demand for capital goods continuing to provide support. Moving forward, a possible escalation in trade tensions and uncertainty could weigh down Malaysia’s external trade sector, including reduced demand from trading partners such as the United States, which accounts for a 13-percent share of Malaysia’s exports.25
Industrial activity: Manufacturing output grew 4.1 percent in the first quarter 2025, slightly slower than the 4.2 percent growth seen in the previous quarter. Export-oriented manufacturing sectors such as E&E saw stronger growth but was tempered by a softening in domestic-oriented segments such as motor vehicles output, which contracted.26 In March 2025, PMI remained in the contractionary zone, although the 48.8 reading was a slight improvement on December’s 48.6. Output, new orders, and overall business confidence remained muted in March.27 April saw PMI backtrack to 48.6 as firms scaled back on production, given a decline in purchasing activity and business confidence at a 21-month low.28
Labor: Malaysia’s labor market remains robust with unemployment continuing to be anchored at pre-COVID-19 levels. Unemployment further declined to 3.1 percent in the first quarter 2025, from 3.2 percent in the previous quarter. Labor demand strengthened, with overall employment increasing by another 143,900 in the first quarter to 16.7 million. The labor participation rate improved the previous quarter’s historic high, growing by a further 0.1 percent to reach 70.7 percent in the first quarter 2025.29
Inflation: Inflation moderated to 1.5 percent in the first quarter 2025, down from 1.8 percent the quarter before. Lower utilities inflation largely drove inflation lower, while mobile communication services also saw lower inflation. The central bank expects inflation to remain manageable through 2025 as global costs ease and domestic demand remains stable—projecting inflation to be between 2.0 and 3.5 percent this year.30
Financial markets
Currency: Having depreciated by 7.6 percent against the US dollar in the previous quarter, the ringgit held steady in the first quarter 2025, strengthening by 0.8 percent. The US dollar weakened against the ringgit following increased expectations that the US economy could exhibit tepid growth this year in light of trade policy uncertainties.31 From April up to mid-May, the ringgit continued to strengthen by about a further 4 percent against the greenback.
Policy rate: Across its three policy meetings held in January, March, and May 2025, the central bank opted to maintain the policy rate at 3 percent. This rate has been held steady for the past two years. While the central bank acknowledged the downside risks to Malaysia’s economy in its latest policy statement, it expressed belief that its policy stance remains conducive to supporting growth and ensuring price stability.32
Capital flows: Malaysia’s FDI inflows stood at US$3.69 billion (15.6 billion ringgit) in the first quarter 2025; a decline of 15.2 percent from US$4.35 billion (18.4 billion ringgit) the preceding quarter. While this marked the lowest FDI recorded in the past three quarters, it is still significantly stronger compared to the same period in 2024. The services sector continued to be the largest beneficiary of FDI in Malaysia, especially the financial services and information and communication subsectors. Germany, Hong Kong, and Singapore and were the first quarter’s top investors.33
The Philippines
The Philippines’ economy was relatively resilient in the first quarter 2025. GDP expanded by 5.4 percent; a 0.1 percent increase compared to the previous quarter. Consumption—a key growth contributor to its economy—saw accelerated growth, while exports strengthened too (Exhibit 5). Stronger government expenditure provided additional growth support. Inflation was at an almost five-year low, with the Philippine peso strengthening against the US dollar during the first quarter. Foreign investments dipped, however, posting the lowest levels seen since the third quarter 2023 as trade and policy uncertainties cloud the investment climate.
The central bank had previously set a GDP growth target of 6 to 8 percent for 2025, with growth forecast to hit the lower end of this range.34 Domestic consumption will remain key in driving the Philippines’ growth going forward.35
Macroeconomic outlook
GDP: The Philippines’ economy recorded growth of 5.4 percent in the first quarter 2025, up slightly on the previous quarter’s 5.3 percent growth. The services sector, which accounts for the largest share of GDP at 62.2 percent, saw growth moderate slightly to 6.3 percent, from 6.7 percent in the fourth quarter 2024. Industrials grew marginally faster at 4.5 percent, from 4.4 percent the prior quarter, while agriculture, forestry, and fishing staged a turnaround to grow by 2.2 percent, following a contraction in the past three quarters.36
Private consumption: Household consumption grew 5.3 percent year-on-year, faster than the 4.7 percent growth attained in the fourth quarter 2024. Food and beverages spending, which accounts for one-third of total household expenditure, was a key growth driver, with demand rising from 0.5 percent in the previous quarter to 4.5 percent in the first quarter 2025. A strong uptick in demand was also seen in other spending categories such as alcohol, tobacco, and clothing and footwear.37 A low-inflationary environment coupled with low unemployment could provide support for robust private consumption, which is expected to drive the Philippines' economy in 2025.38
Trade: Total exports grew to 6.2 percent in the first quarter 2025; stronger than the 3.2 percent growth recorded the quarter before. Goods exports rebounded from the 4.6 percent contraction in the fourth quarter 2024, to grow by 5.2 percent. Services exports, meanwhile, saw growth moderate to 7.2 percent, down from 13.5 percent in the prior quarter.39 Looking ahead, proposed US tariffs could strengthen the Philippines’ value proposition as a supply chain and manufacturing hub, given that the country’s potential tariff burden is the second lowest in the region, behind Singapore. This would strengthen the Philippines’ existing advantages such as low labor costs and a widely available English-speaking workforce.40
Industrial activity: Manufacturing production in the Philippines continued to improve in the first quarter 2025, growing 4.3 percent—from 3.1 percent and 2.8 percent year-on-year in the fourth and third quarter 2024, respectively. Growth was driven by strong performance in the food production segment, which contributes half of the country’s manufacturing output.41 In terms of manufacturing PMI, the first quarter 2025 saw a complete reversal of the previous quarter’s strong performance. PMI fell gradually from 54.3 in December 2024 to 49.4 in March 2025, marking the first time PMI has entered the contractionary zone for the past 19 months, with new orders declining.42 PMI has since defied the regional declining trend, rebounding to 53.0 in April 2025, reentering the expansionary zone. Both output and new orders saw a sharp uptick. It remains to be seen if this can be sustained as business confidence declined in April 2025, reaching its second-lowest level on record.43
Labor: The labor market softened in the first quarter 2025, with unemployment rising to 3.9 percent in March 2025, from 3.1 percent at the end of the previous quarter. The number of underemployed grew during the period, too.44 Against the backdrop of macroeconomic uncertainty, the softening labor market made the unveiling of the government’s ten-year Labor Market Development Plan in early May all the more timely. The plan—also known as Trabaho Para sa Bayan plan, or TPB plan—provides a long-term strategic framework for job creation, labor market transformation, and inclusive workforce development, aimed at addressing prevalent labor market challenges and improving job opportunities and job quality.45
Inflation: Inflation eased throughout the first quarter 2025, reaching 1.8 percent in March 2025, an almost five-year low. This brings the Philippines’ first quarter inflation to 2.2 percent, which is the lower end of the central bank’s 2.0 to 4.0 percent target inflation range.46 Inflation further moderated in April 2025 to 1.4 percent, marking the country’s lowest inflation rate since November 2019.47 Slower price increments in recent months across a combination of expenditure items such as food and beverages and transport have helped lower inflation. The Philippines has subsequently lowered its inflation forecast for 2025 from 3.5 percent to 2.3 percent and its 2026 projection from 3.7 percent to 3.3 percent.48
Financial markets
Currency: The Philippines’ peso gained close to 2 percent over the US dollar in the first quarter 2025 as the greenback weakened following expectations of slower US economic growth.49 The peso further strengthened by another 3 percent in the following two months, rallying to 55 peso per US dollar in May 2025—the first time the peso has reached this level over the past seven months.50 This marked a significant turnaround for the peso, which hit a historic low of 59 peso per US dollar in December 2024, becoming one of Asia’s worst-performing currencies in 2024. Economists at the start of 2025 had predicted a weakening of the currency, possibly breaching the 60-peso-per-US-dollar mark by the middle of 2025.51
Policy rate: The central bank held its policy rate throughout the first quarter 2025, having cut its policy rate twice in the fourth quarter 2024. However, following the US Liberation Day announcement, the Philippines became the first country in Southeast Asia to ease its policy rate, reducing it by 25 basis points to 5.5 percent on April 10. The accommodative monetary policy stance is aimed at supporting the Philippines’ economy as it navigates a more challenging external macro environment, amid a potential fallout from US tariff actions.52 Further cuts have not been ruled out and in a recent investment event in May 2025, the central bank announced it is considering additional interest rate cuts as inflation remains under control.53
Capital inflows: Foreign investment approvals slumped in the first quarter 2025 to US $510 million (27.99 billion peso)—an 82 percent decline compared to the same period a year ago.54 This marked the lowest levels seen since the third quarter 2023 as geopolitical and trade uncertainties impact the investment climate in the Philippines. That said, the investments setback is not expected to put a significant dent on the Philippines’ growth, which remains more dependent on consumption and government spending.55
Singapore
The uncertain global economic environment weighed heavily on Singapore’s economy in the first quarter 2025; GDP moderated to 3.9 percent year-on-year, compared to 5.0 percent in the fourth quarter 2024. Wholesale trade, manufacturing, and finance and insurance were key growth sectors in the first quarter. The results across core indicators were mixed. Private consumption, foreign investments, and manufacturing output saw muted growth, while non-oil domestic exports (NODX) improved slightly (Exhibit 6). Business sentiment has turned more cautious, resulting in fewer jobs coming into the market, and the unemployment rate has increased. Inflation remains under control.
The government has revised downward its 2025 growth forecast, from 1 to 3 percent to 0 to 2 percent. It has also not ruled out the risk of a technical recession in the short term. The central bank has moderated its monetary policy twice in 2025 to stimulate the economy amid global tariff uncertainties.
Macroeconomic outlook
GDP: Singapore’s economy expanded by 3.9 percent year-on-year in the first quarter 2025 (although the first quarter 2025 saw a 0.6 percent contraction from the previous quarter). The wholesale trade, manufacturing, and finance and insurance sectors were key growth drivers, while the accommodation and food and beverage sectors contracted.56
In April, the government revised Singapore’s growth forecast downward, from 1 to 3 percent to 0 to 2 percent, following US tariff announcements. This 0 to 2 percent growth forecast remained in place in the government’s May update, despite some potential de-escalation of trade tensions. However, the government warned that risks were still tilted toward the downside and did not rule out the possibility of a technical recession in the short term.57
Private consumption: Private consumption growth moderated to 3.4 percent year-on-year in the first quarter 2025, continuing its decline from 4.8 percent and 6.9 percent in the fourth and third quarter 2024, respectively.58 Consumption may remain lackluster, especially in food and beverage and retail, given weakening domestic labor conditions and locals making overseas purchases.59
Trade: Singapore’s total merchandise trade saw growth slow from 6.8 percent in the previous quarter to 4.9 percent in the first quarter 2025, with both merchandise exports and imports slowing down. However, NODX, one of the key references for production and Singapore’s trade activities, improved, growing faster at 3.3 percent in the first quarter 2025, from 2.4 percent the previous quarter—with both the electronics and non-electronics segments strengthening.60 Enterprise Singapore expects NODX to grow by 1 to 3 percent in 2025, with growth likely to fall in the lower bound of this range as uncertainty around US tariff action continues.61
Industrial activity: The uncertain trade outlook continued to impact manufacturing output, with year-on-year growth moderated for the second consecutive quarter. In the first quarter 2025, the manufacturing sector expanded by 4.0 percent, slower than the 7.4 and 11.2 percent growth recorded in the previous two quarters.62 Growth was mainly driven by higher output in electronics—with global demand for electronics and semiconductors remaining resilient—as well as the transport engineering sector, which is seeing increased maintenance, repair, and overhaul (MRO) activities.63 Output in the biomedical chemicals and general manufacturing sectors saw contractions. Manufacturing PMI hit a six-year high of 51.1 at the end of the fourth quarter 2024 and has gradually declined since, to 50.6 at the end of the first quarter 2025. April saw the steepest fall in PMI since the Covid period, declining to 49.6. This marked the first PMI contraction in 19 months, as output and new orders shrank following widespread export-order deferments and cancellations due to tariff uncertainty.64
Labor: Singapore’s labor market moderated in the first quarter 2025 amid escalating trade tensions and economic uncertainty. Unemployment rose slightly to 2.1 percent, from 1.9 percent the quarter prior. Total employment grew slower, with the first quarter 2025 seeing employment gains of 6,900—5,000 less than the previous quarter. There were slightly fewer retrenchments in the first quarter, however, at 3,300, down from 3,680 in the previous quarter.65 The Ministry of Manpower expects the labor market to soften going forward, given tough external challenges. Business sentiment has also turned more cautious, with fewer employers expected to hire or raise wages in the upcoming quarter.66
Inflation: Inflation further eased to 1.0 percent on a year-on-year basis, down from 1.4 percent in the fourth quarter 2024 as price inflation continues its downward trend since the fourth quarter 2022. A mix of softer consumer demand, easing cost pressures, and government subsidies helped moderate prices. Aside from transport, which saw faster price growth following higher car prices as well as bus and train fares, almost all other spending categories saw price growth moderate or, in some cases, contract, during the quarter.67 In its April policy statement, the central bank revised downward its inflation forecast to 0.5 to 1.5 percent, from the previously forecast of 1.5 to 2.5 percent.68
Financial markets
Currency: The Singapore dollar was one of Asia’s strongest-performing currencies against the US dollar in the first quarter. Singapore’s stability and strong fundamentals make the Singapore dollar an attractive haven, strengthening its appeal in the face of global uncertainty regarding US tariff action. The Singapore dollar gained about 2.2 percent against the US dollar in the first quarter 2025 and strengthened by another 3.7 percent from April to end May. External analysts remain confident about the strength of the Singapore dollar and forecast further strengthening for the currency.69
Policy rate: In January 2025, the Monetary Authority of Singapore announced easing of its monetary stance for the first time in nearly five years.70 With inflation remaining well under control, another round of easing was announced in April 2025 to stimulate demand in the economy and support immediate-term growth as the country weathers the ongoing tariff situation.71
Capital inflows: Singapore’s FDI net inflow declined slightly to US $44.1 billion (59.6 billion Singapore dollars) in the first quarter 2025, from US $45.0 billion (60.8 billion Singapore dollars) the previous quarter.72 The investment climate for 2025 is expected to remain challenging in the face of significant geopolitical headwinds and macroeconomic uncertainty, with protectionist trade policies impacting companies’ investment decisions. Singapore will focus on attracting investments in key sectors of high-value-added manufacturing, among others, alongside emerging growth areas such as AI, digitalization, and climate technologies.73
Thailand
After three consecutive quarters of year-on-year growth, Thailand’s economy pulled back in the first quarter 2025. The economy attained 3.1 percent GDP growth; slightly lower than the 3.3 percent growth seen in the previous quarter. Exports and public investments drove first quarter growth and production levels held up, while consumption weakened (Exhibit 7). The Thai baht stayed resilient and inflation remained stable, allowing room for the central bank to exercise two rounds of policy rate adjustments, reducing the policy rate by 0.25 percent in February and April 2025 to stimulate growth in Thailand’s economy.
Following Thailand’s soft first quarter performance, the government revised downward its economic growth forecast for 2025 to 1.3 to 2.3 percent, from the previous 2.3 to 3.3 percent range. High consumer and corporate debt burdens, along with the impact of global trade uncertainty, are expected to have adverse repercussions on economic activities in 2025.74
Macroeconomic outlook
GDP: Thailand’s economy grew slightly slower in the first quarter 2025, at 3.1 percent, from 3.3 percent the previous quarter. The services sector was a drag on economic performance, with growth decelerating to 4.2 percent, from 4.7 percent in the fourth quarter 2024. Tourism grew 13.7 percent, while the transportation and storage sectors saw slower growth of 5.4 percent, from 9.0 percent the quarter prior. Export-oriented industries provided a small boost to manufacturing, which grew slightly to 0.6 percent, from 0.3 percent the previous quarter. The agricultural sector continued to rebound with 5.7 percent growth, making it the best-performing sector, buoyed by strong production of major crops, livestock, and fisheries.75
Private consumption: Private consumption growth decelerated to 2.6 percent in the first quarter 2025, from 3.4 percent in the fourth quarter 2024. Almost all consumption categories saw slower spending.76
Trade: The exports sector continued its turnaround, growing by 15.0 percent in the first quarter 2025; the highest rate in 13 quarters and a significant acceleration from the 10.6 percent growth attained in the previous quarter. Electronics exports—such as computers, computer parts, and integrated circuits—telecommunications equipment, and rubber were key growth drivers. Imports growth decelerated to 7.1 percent, having achieved double-digit growth in the past two quarters. Overall, Thailand recorded a higher trade surplus: US$8.2 billion, from US$5.4 billion the previous quarter.77
Industrial activity: The manufacturing sector grew for the fourth consecutive quarter, having seen almost continual contractions for three years before turning a corner in the second quarter 2024. The first quarter 2025 saw growth improve to 0.6 percent, from 0.3 percent the previous quarter. Key export-oriented segments such as computers and rubber products supported this growth.78 Having ended 2024 on a strong note with a PMI reading of 51.4, Thailand’s manufacturing conditions returned to the contractionary zone at the end of the first quarter 2025, hitting 49.9 before further deteriorating to 49.5 in April 2025. In the same month, new orders declined at the quickest rate since a year ago, while current production and staffing levels appeared stable.79
Labor: The unemployment rate in the first quarter 2025 remained steady at 0.89 percent; a slight increase from 0.88 percent the previous quarter.80 This made it one of Thailand’s lowest quarterly rates of unemployment over the past ten years.
Inflation: Inflation increased marginally in the first quarter 2025 to 1.1 percent, from 1.0 percent the previous quarter, due to higher fresh food prices and other core inflation categories.81 Inflation is expected to remain low through 2025 and could see a sharp fall in the second quarter 2025.82
Financial markets
Currency: The Thai baht was resilient in the first quarter 2025, staying range-bound within the 33 baht-mark over the US dollar. Uncertainty over US trade policy reduced the appeal of the US dollar as a safe-haven asset and drove a significant influx of foreign capital into Thailand’s bond market, which provides support for the Thai baht.83 Since the end of the first quarter, the Thai baht has further strengthened by about 1 percent, prompting some concerns for the competitiveness of Thailand’s exports and the potential impact on its tourism sector.84
Policy rate: In the first quarter 2025, the Bank of Thailand (BOT) cut its policy rate by 25 basis points to 2 percent in February. It followed with a similar cut in April 2025, which brought Thailand’s policy rate to 1.75 percent. Concerns over a slowdown in Thailand’s economy due to ongoing trade tensions prompted the BOT to proceed with cuts in a bid to support economic growth. Inflation is expected to remain under control.85
Capital inflows: Thailand continued to receive strong foreign investment interest, with FDI in the first quarter 2025 growing by 62 percent year on year to US$8.2 billion (267.7 billion baht).86 High-tech investments saw robust interest, with the digital sector securing the largest share of FDI, following solid investment commitments in data centers and digital industries. Thailand’s traditionally strong sectors, electronics and electrical appliances and automotive, took second and third spot, respectively. Hong Kong-based companies led the share of FDI in the first quarter, accounting for half of total FDI, followed by China- and Singapore-based investors.87
Vietnam
Vietnam’s GDP grew 6.93 percent in the first quarter 2025. This was weaker than the 7.55 percent growth attained in the fourth quarter 2024 and snapped Vietnam’s streak of three consecutive quarters of growth. Consumption was stable, given the Tết holiday and strong tourism demand. Exports softened in the first quarter but rebounded in April, most likely due to a surge in front-loaded orders following US tariff announcements (Exhibit 8). Industrial activity grew slower in the first quarter while PMI plummeted in April, indicating challenging near-term production conditions. Foreign investments were the bright spark of the first quarter, with registered foreign investments jumping by 34.7 percent year on year.
Despite the tough macroeconomic environment and US tariff policy changes, the government kept its ambitious 2025 GDP growth target of 8 percent. The country will continue to negotiate with the United States to secure balanced trade and avert a 46 percent tariff that could deal a serious blow to Vietnam’s growth in 2025 if tariff action follows through.88
Macroeconomic outlook
GDP: Vietnam attained 6.93 percent in year-on-year GDP growth in the first quarter 2025; weaker than the 7.55 percent growth recorded in the fourth quarter 2024. The services sector contributed the largest share to GDP, though sector growth declined from 8.21 percent to 7.70 percent, with consumption from the Tết holiday and a rebound in international tourism providing support. The industry and construction sector saw a larger drop in growth from 8.35 percent to 7.42 percent, and manufacturing became the sector’s key growth driver, achieving 9.28 percent expansion. Agriculture, forestry, and fishery saw a modest uptick from 2.99 percent growth in the fourth quarter 2024 to 3.74 percent in the first quarter 2025.89
Private consumption: Private consumption remained steady and rose by 7.45 percent year on year in the first quarter, tracking close to the 7.54 percent growth attained in the previous quarter. Strong consumer demand during the Tết holiday period supported stable consumption levels.90
Trade: The export of goods continued to soften. The first quarter 2025 recorded 10.5 percent growth, slower than the 11.5 percent and 15.9 percent growth recorded in the fourth and third quarter of 2024, respectively. Among key exports segments, computers, electronics, and mobile phones saw stronger momentum, while external demand for textiles and footwear softened. The United States remained Vietnam’s top exports market by some distance, accounting for 31.5 percent of Vietnam’s goods exports in the first quarter, followed by China and Korea at 13.2 percent and 6.8 percent, respectively. Vietnam’s trade surplus with the United States remained the largest among its trading partners, at US$27 billion.91
However, April’s exports appeared strong, with a sharp rise of 19.8 percent year on year, likely due to a surge in front-loaded orders following the pause in tariff action and temporary exemptions for electronics goods.92 Vietnam may be one of the hardest-hit countries by recent US tariff action; negotiations reportedly remain ongoing between both countries with Vietnam pledging to lower existing tariffs on US imports to zero and to remove specific tariff barriers as part of its proposed resolution.93
Industrial activity: Growth in industrial activity inched slightly lower to 7.8 percent in the first quarter 2025. This was down marginally from 7.9 percent in the fourth quarter 2024, having decelerated from 9.59 percent in the third quarter 2024. Manufacturing continued to expand, clocking 9.5 percent growth, with key exports product segments such as apparel, footwear, and electronics growing more than 10.0 percent in the first quarter. However, mining and quarrying output shrunk.94 In March, PMI landed in the expansionary zone for the first time since November 2024, at 50.5. This was short-lived, however, as the April tariff announcement precipitated marked reductions in output, new orders, employment, and purchasing, leading to a sharp decline in PMI to 45.6. Business confidence dropped sharply to a 44-month low and was at one of its weakest levels as manufacturers expressed concerns about the impact of tariffs.95
Labor: The labor and employment situation was broadly stable in the first quarter 2025. The unemployment rate improved marginally to 2.20 percent, from 2.22 percent in the fourth quarter 2024. The average income of employees saw a modest increase in the first quarter, too, with stronger growth seen in the services and finance sectors. Structural challenges do, however, exist in the labor market, with youth (aged 15–24) unemployment remaining high at 7.93 percent.96
Prices: Inflation inched upwards to 3.22 percent in the first quarter 2025, from 2.87 percent in the fourth quarter 2024. Increased prices in food and foodservice, housing, electricity, pharmaceutical products, and medical services mainly contributed to higher inflation in the first quarter.97 Geopolitical risks, global trade disruptions, and domestic challenges remain risk drivers toward higher inflation in 2025, although the government remained committed to keeping inflation in check. The National Assembly has set a target for inflation to be kept within the 4.0 to 4.5 percent range in 2025.98
Financial markets
Currency: Having closed 2024 at a record low against the US dollar, the Vietnam dong depreciated in the first quarter 2025 and, as of May, had declined a further 2.22 percent against the greenback.99 The Vietnam dong has had a volatile 2025, mainly due to global macroeconomic uncertainty, and could remain under pressure against the dollar following the announced US tariff actions.100
Policy rate: Vietnam’s policy rate remained constant at 4.5 percent throughout the first quarter 2025.101 The central bank will likely continue to manage policy rates in line with market developments, macroeconomic conditions, and inflation, while aligning to its monetary policy objectives.102
Capital inflows: Foreign investment was a bright spot for Vietnam in the first quarter 2025, with US$10.98 billion in registered investments—a 34.7 percent increase year on year. The manufacturing and processing industries accounted for 61.9 percent of total registered investments, a marked 26.0 percent increase year on year, reaffirming the country’s position as a key investment destination. Disbursed or realized foreign investments saw an uptick too, having increased by 7.2 percent year-on-year to US$4.96 billion in the first quarter.103 Despite tariff uncertainty, foreign investment momentum continued to keep pace in April with investments registered and realized growing by 40.0 percent and 7.3 percent, respectively, for the first four months on a year-on-year basis. External analysts believe the strong performance stemmed from Vietnam’s attractiveness as an FDI destination and its extensive network of free trade agreements, which offer large export opportunities beyond the United States. Fresh FDI, however, paused, given the uncertain economic climate.104
In the spotlight
Tariff tactics: A geopolitical nerve center could give companies direction
The surge in tariffs that Southeast Asia is facing makes it one of the most affected regions outside China. While the United States offered a 90-day reprieve, reducing tariffs to a baseline rate of 10 percent for all countries except China (which as of June 18 stood at an average of 51.1 percent), this temporary relief only adds another layer of complexity to the already-intricate geopolitical and macroeconomic landscape.105
The impact of these tariffs is being felt at both the national and corporate levels across the region. Countries will need to recalibrate their political and trade relationships, while companies will have to reassess their strategies, supply chains, and operational models. To effectively navigate these challenges, business leaders in Southeast Asia will need to adopt an agile approach. Establishing a geopolitical nerve center could provide the necessary insights and flexibility to adapt to the rapidly changing tariff environment.
A nerve center can track developments, plan across time horizons, and guide decisions. It can consist of cross-functional teams and be coordinated by a central planning team, utilizing specialized analytics to tackle tariff impacts across immediate, medium-term, and long-term time horizons.
Nine initiatives are recommended for an effective geopolitical nerve center:
- tariff operations
- inventory and supplier operations
- stakeholder engagement
- product engineering and classification management
- commercial optimization
- cost reduction and cash preservation
- manufacturing and remanufacturing
- supplier network and supply chain optimization
- business portfolio shifts
A central planning team could provide situation reports and conduct six key analyses, including: tariff scenario modeling, tariff cost modeling, tariff competitive advantage modeling, trade flow analytics, demand modeling and pricing implications, and risk identification across supplier tiers.
Given the likelihood of tariffs remaining a critical issue throughout 2025, companies that have a geopolitical nerve center could end up with a competitive edge in an uncertain world.
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