Asean growth is expected to ease to 4.6% in 2026 due to US tariffs and weaker demand in some countries like Thailand and the Philippines, before rising to 4.8% in 2027, according to the Asean+3 Macroeconomic Research Office (Amro).
It said strong demand, investment and consumption in other economies will help offset the slowdown. The region grew 4.9% in 2025 thanks to foreign direct investment inflows into advanced electronics, electric vehicles and digital services.
Malaysia’s growth is projected at 4.6% in 2026, down from 5.2% in 2025, and 4.7% in 2027.
Amro said the broader Asean+3 region, 10-member Asean countries, plus China, Japan and South Korea, is expected to grow 4.0% in 2026–2027, slower than 4.3% in 2025, as higher US tariffs weigh on external demand. Trade growth may also slow after frontloading of shipments in 2025, though AI-driven demand for semiconductors and electronics will provide some support.
“The Asean+3 region entered 2026 from a position of strength but the Middle East conflict has shifted the balance of risks to the downside,” said Amro chief economist Dong He said in a statement released on Monday.
“That said, the region is better placed than in earlier episodes to navigate an energy shock — its economies are more energy-efficient and less oil-dependent, inflation remains relatively low and most economies retain sufficient policy space to respond,” he added.
Domestic demand is expected to remain the key growth driver, supported by continued investment activity, steady foreign direct investment (FDI) inflows and resilient private consumption amid favourable labour market conditions.
Meanwhile, headline inflation is projected to edge up to 1.4% in 2026 and 1.5% in 2027, mainly due to higher global energy prices and subsidy rationalisation in several economies.
Asean+3 sources over one-third of its oil and gas from the Middle East, Amro noted, warning that the risk of higher energy costs and inflation remains significant.
Policy responses vary between demand and supply shocks
Amro noted that policymakers face differing responses depending on the nature and persistence of shocks, particularly in balancing growth, inflation and financial stability.
In the case of a supply shock — such as a prolonged surge in global energy prices — the region, as a net energy importer, may face a difficult trade-off between growth and inflation, alongside capital flow pressures and market volatility.
If the shock is temporary, policymakers may “look through” the price spike to avoid undermining growth. However, broader and sustained inflation pressures would require more decisive action to anchor expectations. Fiscal policy should focus on targeted support for vulnerable groups rather than broad subsidies that could distort prices and strain public finances.
By contrast, demand shocks — including escalating trade tensions or a technology-led global slowdown — present a clearer case for accommodative policy.
If such shocks are temporary, policymakers may wait and assess, particularly if policy space is limited. However, if the downturn appears prolonged, early intervention is crucial to prevent a sharp decline in confidence and investment, as well as further erosion of policy space.
“Coordinated monetary easing and targeted fiscal support can then work together to stabilise the economy,” Amro said.
Source: theedgemalaysia