As global trade tensions escalate, South-East Asia faces a more uncertain economic outlook in Q2 2025. The latest ICAEW Economic Insight: Mainland China and South-East Asia Q2 2025, prepared by Oxford Economics, reveals diverging prospects for China, Malaysia and Singapore as they navigate weakening global demand and rising protectionism heading into the second half of this year.

Commenting on the report, Suren Thiru, ICAEW Economies Director, says: “Rising trade barriers and weaker global demand are reshaping the economic outlook across South-East Asia.

“While China grapples with long-standing structural challenges, Malaysia and Singapore’s export-orientated models are increasingly vulnerable to global volatility. Proactive policy responses, particularly monetary easing, will be key to cushioning downside risks.”

Mainland China: tariffs cloud growth prospects

China began 2025 with better-than-expected GDP growth of 5.4% year-on-year in Q1, supported by government stimulus including rate cuts, infrastructure spending and housing support. However, economists warn this momentum may not last. Heightened uncertainty around US-China tariffs, temporarily paused until August, has dented business confidence and delayed investment.

Retail sales and fixed asset investment showed improvement early in the year, but property sales and new starts continue to slump, down 3% and 27% year-on-year respectively. With exports to the US likely to fall when tariffs resume, China’s fragile recovery could falter.

Oxford Economics forecasts GDP growth to slow to 4.4% in 2025 from 5% in 2024, with inflation hovering around zero as weak domestic demand keeps prices subdued. Structural issues in the housing market, sluggish consumption and limited fiscal space due to falling government revenues are likely to constrain policy support.

Malaysia: monetary easing expected as growth slows

Malaysia’s economy is feeling the pressure of faltering global demand. GDP growth slowed to 4.4% year-on-year in Q1, down from 5.1% in 2024, driven by weaker goods and services exports. Despite a temporary April surge in electronics shipments to the US, the outlook is clouded by the re-imposition of US tariffs and slower demand from China, Malaysia’s largest trading partner.

More than 4% of Malaysia’s GDP is indirectly tied to the US through global supply chains. Even a lower-than-expected 10% blanket tariff on Malaysian imports is likely to weigh on future exports and domestic demand.

Still, pockets of resilience remain. Electronics exports are up 20% year to date and Association of Southeast Asian Nations (ASEAN) tourism demand continues to support services. Inflation is well-contained around 1.5%, giving Bank Negara Malaysia scope to respond. Oxford Economics anticipates a 50 basis point interest rate cut this year to cushion the downturn.

Singapore: recession avoided, for now

Singapore’s highly export-dependent economy contracted 0.6% quarter-on-quarter in Q1 2025, raising the risk of a technical recession. However, a sharp rebound in goods exports, up 25% year-on-year in April, offers hope. Export front-loading and resilient global tech demand, particularly for electronics, are likely to sustain momentum through Q2.

Yet challenges loom large in the second half of the year. Singapore’s exposure to US demand, more than 6% of GDP, is the highest among ASEAN peers. Labour market weakness is already evident in sectors such as manufacturing and professional services, with hiring and wage intentions falling.

Despite these headwinds, Singapore has fiscal and monetary firepower. A government voucher scheme worth SGD 1,000 per household should bolster domestic demand, and inflation is expected to remain below 1%. The Monetary Authority of Singapore is likely to further ease the S$NEER (Singapore Dollar Nominal Effective Exchange Rate) slope, potentially to zero in July.

Oxford Economics projects GDP growth to slow to 1.8% in 2025 from 4.4% in 2024, near the top end of the government’s forecast range.

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