Five themes for Asia in 2025 : Bracing for Trump 2.0

First of a five-part series on key themes shaping Asia's outlook in 2025.

Approaching 2025 in good form

“The decline in inflation without a global recession is a major achievement”, wrote IMF Chief Economist, Pierre-Olivier Gourinchas, in a recent blog.

This simply cannot be stressed enough.

In October 2023, the institution had predicted that the US growth will nearly half to 1.5% in 2024 from 2023 (see Table - How have IMF growth projections changed). Fast forward to today, the US is expected to grow at a similar pace as 2023, despite an aggressive tightening cycle by the Fed.

IMF’s forecasts for Asia have also been generally revised upwards. 2024 growth rates have lifted between 0.5-0.7ppt for China, India, Malaysia, Singapore and Taiwan, and to a lesser degree for S Korea, Hong Kong and Vietnam. This reflects two factors. First, a buoyant US economy and a strong tech cycle that have supported global demand and Asian exports in the face of a slowing China. Second, the region’s resilient domestic demand - driven by tight labour markets, rising real incomes, infrastructure investments and accommodative policies, depending on which economy you are looking at.

There is positive news on inflation too (see Table - How have IMF average inflation projections changed), with most 2024 inflation forecasts lower between October 2023 and 2024. However, the inflation downtrend has recently stalled in many places, including in Asia. Additionally, Pierre notes that “inflation in services remains too elevated, almost double pre-pandemic levels”. So, he cautions that the world needs to stay vigilant on inflation.

We tend to agree that risks to inflation are to the upside in a global economy subject to a rising frequency of supply chain disruptions from geopolitical conflicts, trade frictions and extreme climate events. Our base case, however, is for inflation to be low in Asia in 2025, partly because of slower growth expectations. Five themes shape our outlook as we discuss next.

Five themes for Asia in 2025

Let us state right at the start, this list is not exhaustive. Asian economies are in the middle of a major economic transformation and there are more factors shaping the economic outlook than we can count on our fingertips. Just because we don’t include digitisation or financial inclusion or the start-up ecosystem as separate themes, it doesn’t mean that they are not important. Our choice of the themes, that are listed below, is driven our assessment of which factors have a greater bearing on the cyclical and short-term macro outlook, even if few of them are structural in nature.

We will be examining each of these themes in separate substack posts. This one focuses on a recent election outcome that you must have heard of - and cheered or mourned - unless you’re trekking in the Himalayas (and missing out on our great substack!).