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Southeast Asia—Macroeconomic risks diverge across the region
Southeast Asia’s continued strong economic performance reflects rising participation in global technology value chains. However, uncertainty remains elevated with risks stemming from the ongoing Middle East conflict, the scale and durability of the AI investment cycle, financial market volatility, further tariff measures targeting the region, and weaker growth in China. Countries with persistent large twin fiscal and current account deficits (the trade balance forms a component of the latter) have increased exposure to shifts in investor sentiment. Impacts could be felt through capital outflows, higher refinancing costs, exchange rate depreciation, or pressure on foreign exchange reserves in economies with managed currencies. Vulnerabilities are greater where external debt is short term, economic buffers are limited, and foreign investors hold a large share of government debt.
Recent shocks, including elevated energy prices, rising trade protectionism and the AI-driven investment boom, have layered impacts on ASEAN economies. While Singapore remains the exception, most ASEAN countries run fiscal deficits and several expanded energy subsidies to shield households and businesses from higher costs. This has increased fiscal pressures in Indonesia, Malaysia, Vietnam, Thailand and the Philippines. Current account dynamics have been more varied. Vietnam, Singapore and Malaysia benefit from strong semiconductor and electronics exports, offsetting higher energy and manufacturing input costs. However, higher energy and industrial imports in Thailand and the Philippines alongside weaker tourism (Thailand) and Gulf remittances (Philippines) are worsening current account balances. Indonesia also sees wider current account deficits as import demand outpaces gains from higher commodity exports.
Overall, “twin deficits”—expected in Indonesia, Philippines, Cambodia and Timor-Leste (Chart)—signal increased susceptibility to shocks rather than an imminent crisis. Robust growth helps offset vulnerabilities, with recent ADB forecasts suggesting strong growth for Vietnam (7.2%), Indonesia (5.2%), Malaysia (4.6%), Cambodia (4.1%), Timor-Leste (3.8%), Philippines (3.8%) and Singapore (3.2%).
