ADB’s Growth Projections: Southeast Asia on the Decline
The Asian Development Bank (ADB) has recently updated its growth forecasts for Southeast Asia, revealing a daunting picture for the region’s economies. The multilateral development bank has downgraded projections for all major economies except Vietnam, projecting a slight increase for that nation. Thailand and Singapore, in particular, face the sharpest declines, with reductions of at least one full percentage point.
Reasons Behind the Downgrade
The downward revisions from the ADB reflect a combination of critical factors, including the persistent deceleration of global growth, increased trade uncertainty, and ongoing domestic challenges within these countries. On September 30, the bank released an updated version of its flagship economic outlook, which initially debuted in April.
Additionally, the temporary boost that earlier tariff front-running provided to Southeast Asian exports is expected to dissipate. The overall projected growth for Southeast Asia is now pegged at 4.3% for both this year and the next, compared to the previously estimated 4.7%.
Thailand: Economic Struggles Amplified
Thailand, the second-largest economy in Southeast Asia, has experienced one of the most severe downgrades. After a growth rate of 2.5% last year, the ADB now anticipates a decline to 2% for this year—a significant drop from the earlier forecast of 2.8%. Moreover, projections for 2026 have been slashed from 2.9% to just 1.6%.
The challenges facing Thailand are manifold; both external and domestic pressures are at play. A hefty 19% tariff on various sectors, particularly electrical equipment, machinery, metals, processed food, and vehicles, is expected to hinder exports, which in turn will negatively impact the industrial production outlook.
Tourism—an essential driver of the economy—constitutes about one-eighth of Thailand’s GDP, yet recovery is sluggish due to the slow return of Chinese tourists, rising competition from other destinations, and depreciating currencies in rival countries. This downturn in tourism significantly undermines the services sector, which, alongside increasing concerns about domestic political stability, is forecasted to stifle private investment.
Private consumption is also projected to decline due to factors such as waning consumer confidence, high household debt, and reduced agricultural incomes stemming from lower prices. Consequently, the ADB warns that economic growth could slow further as US tariffs, a languishing tourism sector, and heightened geopolitical tensions exacerbate existing vulnerabilities.
Singapore: Facing Tariff Challenges
In Singapore, the ADB has reduced the growth forecast from 2.6% to 2.5% for 2025 and from 2.4% to 1.4% for 2026. Last year, Singapore enjoyed a growth rate of 4.4%, but the outlook is now less optimistic. The government itself has revised its economic forecast to between 1.5% and 2.5%, up from an earlier estimate ranging from 0% to 2%.
Despite a robust first half of the year, the ADB highlights a moderation in growth due to slowing expansion in crucial outward-oriented sectors, including wholesale trade and transportation.
The tariffs imposed by the United States particularly affect Singapore’s economy, emphasizing how deeply intertwined the two nations are. According to John Beirne, an ADB principal economist, the unexpected extent of external demand influenced these latest revisions.
Additional US tariffs on pharmaceuticals and semiconductors loom especially large for Singapore, as these sectors significantly contribute to the country’s exports to the U.S.
Vietnam: A Beacon of Resilience
In stark contrast, Vietnam is the only major economy in Southeast Asia to see an upward revision in its growth forecast. The ADB has improved its outlook for Vietnam to 6.7% for 2025, slightly up from 6.6%. The first half of the year has seen robust GDP growth at 7.52%, fueled by strong exports and improvements in manufacturing, services, and foreign direct investment.
For 2026, the forecast indicates a moderation to 6%, slightly down from the earlier estimate of 6.5%. The ADB anticipates that Vietnam’s economy will remain resilient due to expansionary fiscal and monetary policies aiding domestic consumption. However, potential weaknesses from US tariffs may restrain demand for services, and if trade tensions continue, investment could be impeded, limiting long-term growth.
Inflation Trends
Inflation projections for the region present a more favorable outlook, as the ADB has revised its expectations downward. The inflation rate is now forecasted to be 2.5% in 2025, a reduction from a previous estimate of 3%. The projected rate for 2026 is slightly higher at 2.7%, compared to an earlier prediction of 2.8%.
Lower food and energy prices have played a significant role in this disinflation trend, although core inflation has remained steady. Overall, Southeast Asia’s monetary policy is adapting to these changes, with central banks poised to maintain an accommodative stance moving forward.
The economic challenges ahead for Southeast Asia’s major economies highlight vulnerable interdependencies and underscore how external forces can shape regional growth trajectories.