The Asian Development Bank (ADB) projects Southeast Asia’s economy to grow by 4.7% in 2025, fuelled by booming manufacturing exports and public capital investment. As US-China tensions intensify, the region must navigate geopolitical risks and trade fragmentation to fulfil its aspiration to become a global supply chain hub.
Southeast Asia’s economy is projected to grow by 4.7% this year, up from the previous 4.5% forecast, according to the Asian Development Bank (ADB). This optimistic outlook is driven by strong manufacturing exports—particularly in electronics—and significant public capital investments. ASEAN is home to the world’s largest semiconductor companies, with multinational enterprises boosting investments, expanding production capacity, developing new business functions, and increasing their regional presence to meet growing global demand.
However, the region’s growth trajectory remains challenged by geopolitical uncertainties, trade fragmentation, and domestic vulnerabilities.
As multinational companies seek alternatives to traditional manufacturing hubs amid escalating geopolitical tensions, Southeast Asia has emerged as an attractive option. Countries like Vietnam, Thailand, and Malaysia have seen rapid growth in electronics, automotive components, and textile exports. This transformation is further supported by a surge in foreign direct investment (FDI), signaling long-term confidence in the region’s manufacturing capabilities.
As per the ASEAN investment Report 2024, FDI inflows to ASEAN hit a record $230 billion in 2023, even amid a global decline in foreign investment flows.
Among the ASEAN-6 countries, Singapore attracted the majority of these inflows, followed by Indonesia, Vietnam, the Philippines, Malaysia, and Thailand. The manufacturing and financial sectors absorbed most investments, with transportation, construction, and wholesale also seeing significant inflows.
Governments are also playing a pivotal role by investing heavily in public capital projects—focusing on transportation, energy, and digital connectivity—to boost competitiveness and stimulate domestic demand. These infrastructure projects not only tackle existing bottlenecks but also create a favorable environment for sustainable growth and attract more foreign investment.
Despite these positive developments, Southeast Asia faces notable risks, primarily stemming from the intensifying rivalry between the United States and China. ASEAN countries, aiming to maintain a balanced approach, are exploring multiple alliances. For instance, Indonesia joined BRICS in January 2025 while expressing interest in joining the Western-led Organisation for Economic Co-operation and Development (OECD).
Trade fragmentation poses a significant challenge, especially if the US expands tariff policies beyond China to countries like Vietnam, potentially undermining the region’s competitiveness. Additionally, geopolitical tensions, particularly the ongoing Middle East conflict, have driven up global shipping costs by nearly 40% since October 2023, heightening economic vulnerabilities.
The risk of China dumping cheaper products into Southeast Asia looms large, potentially undercutting local manufacturers and destabilizing economies. Policymakers must remain vigilant and adopt proactive measures to mitigate these risks and preserve economic momentum.
Domestically, sluggish household consumption remains a critical concern. Elevated inflation rates, high energy prices, and global supply chain disruptions have reduced consumer purchasing power. Countries like Thailand and Malaysia, grappling with high household debt and rising interest rates, face additional economic pressures. Without addressing debt vulnerabilities and controlling inflation, consumer demand may remain subdued, hindering growth prospects.
To maintain economic resilience, policymakers need a comprehensive strategy that includes diversifying export markets, deepening regional integration, and fostering domestic demand. Structural reforms to enhance productivity and competitiveness are also vital, along with prudent fiscal management to weather external shocks.
Strengthening trade agreements with global economies and equipping the workforce with advanced technical and digital skills are crucial to staying competitive.
Ensuring capital and labour mobility while minimizing automation-driven job losses will further support sustainable growth. By implementing robust policies and fostering regional cooperation, Southeast Asia can navigate global uncertainties and sustain its growth story.
