Asia Macro Outlook 2025: Navigating the Rapids

2024 turned out to be a goldilocks year for Asian economies, despite a weak China. GDP growth recovered, supported by tailwinds from the semiconductor-led export upcycle and resilient domestic demand. Inflation descended to within central bank target ranges, and a stop-start easing cycle kicked off from August, closely intertwined with the Fed’s first rate cut.

As we set sail into 2025, expect turbulence. While strong AI demand and export frontloading should provide some growth support in the first quarter, Asia appears headed for rougher seas from Q2, due to the fallout from Donald Trump’s second presidency, China’s production overcapacity and a slowing semiconductor cycle. Growth in Asian economies with stronger domestic demand buffers, like Malaysia and the Philippines, are likely to outperform, according to Nomura analysis. Meanwhile, India, Thailand and Korea will likely disappoint. Disinflation should also sustain in the region, exacerbated by the disinflationary impulse from a redirection of Chinese exports. We also forecast monetary policy divergence among Asia’s central banks.

The four forces at play

Four forces will determine Asia’s economic outlook in 2025:

1. Trumponomics. Trade and tariff policies are likely to be imposed quickly, with 60% on Chinese imports and 10% across-the-board tariffs starting in Q2. For Asia, higher tariffs and trade barriers mean weaker exports. Increased uncertainty and tit-for-tat retaliation might delay business investment. Asia will also have to navigate tighter global financial conditions due to higher terminal rates in the US and a stronger dollar. If Trump focuses on reducing US bilateral trade deficits, Asia will be in the line of fire as China, Vietnam, Japan, Taiwan, South Korea and India are among the top 10 countries with which the US runs a trade deficit.
2. China’s stimulus versus overcapacity. The tug-of-war between China’s success in reviving its domestic demand and the threat to its exports is an important factor. Beijing is expected to ramp up its fiscal stimulus, focused on transfers to local governments, spending on social security for low-income households, funding for trade-in programs and spending on the property sector. The spillovers to the rest of Asia will likely be mixed: a stabilization of China’s domestic demand would be neutral, but higher tariffs on Chinese imports from the US and Europe would be negative, due to a likely redirection of these exports to the rest of Asia.
3. Durability of the semiconductor upcycle. Global semiconductor shipments will likely record solid growth of 18% year-over-year in 2024, aided by strong artificial intelligence demand and higher memory prices. In 2025, we expect growth to moderate to 9.3%. While AI demand remains strong, demand for legacy tech products, including consumer electronics, remain tepid. Furthermore, the US-China tech rivalry has incentivized China to become more self-sufficient in semiconductors. Given slower chip exports and lackluster non-tech exports, Asia’s export growth will likely transition to a slower pace in 2025.
4. Buffers from domestic demand. Amid weaker global trade prospects, Asian economies that have stronger domestic demand buffers can outshine. There are two candidates: Malaysia, due to the data centre construction boom, supply chain shifts and public infrastructure projects; and the Philippines, where infrastructure spending may benefit from mid-term elections scheduled in May 2025. In contrast, domestic demand may disappoint in India due to the lagged effects of tight monetary policy and credit conditions. Thailand and Korea are also likely to face weak domestic demand.

Asia in 2025: Slower growth and sustained disinflation

More turbulence lies ahead for Asia in 2025. Into the first quarter, strong AI demand and export frontloading may support overall growth, but a sharper sequential moderation is likely from the second quarter due to weaker import demand, slowing semiconductor sales growth and softer domestic demand.

Overall, we expect average Asia ex-Japan GDP growth to moderate to 3.9% y-o-y in 2025 from 4.3% in 2024.

We are above consensus on 2025 GDP growth in Malaysia and Japan, and below consensus in China, India, Korea and Thailand. Within Asia, ASEAN economies should outperform due to the strong infrastructure spending push, benefits from supply chain relocation and their greater trade-investment integration with China.

Inflation has moderated in 2024 and disinflation is likely to sustain into 2025. Subdued commodity prices and weaker demand are likely to contain goods price inflation, while labor market rebalancing should enable faster services disinflation. A redirection of Chinese exports to the region provides an additional disinflationary impulse. We expect Asia ex-Japan CPI inflation to moderate to 2% year-over-year in 2025, from 2.2% in 2024.

Monetary policy: Can Asian central banks decouple from the Fed?

The ability of Asian central banks to decouple from a more hawkish Fed will vary, depending on their sensitivity to FX, reserve adequacy and other domestic factors. We see diverging monetary policy outlooks across Asia Pacific:

• Moderate easing in Indonesia, China and Thailand
• Aggressive easing in India, Philippines, Korea and Australia
• Rate hikes in Japan and Malaysia

For more on our 2025 macroeconomic outlook, read our full report.