Southeast Asian economies recorded stronger growth in the second quarter of 2025 as businesses front-loaded activities during the 90-day tariff pause period. Vietnam’s economy was the region’s best-performing, achieving its second-best quarterly performance since 2020 and its strongest first-half performance in over a decade. Indonesia, the Philippines, and Singapore rounded up the list of regional economies, all with growth upticks in the second quarter, while Malaysia maintained its growth rate. Thailand was the exception, where growth moderated following softer tourism numbers and consumption (Exhibit 1).1
Core growth drivers broadly strengthened: Industrial activity showed a surprise upside, following stronger orders and exports, while private consumption remained a steady growth anchor on low inflation and stable labor markets. Investments, however, showed mixed signals on the back of market caution, with policy stances turning mostly dovish.
The strength seen in the second quarter helped to lift economic performance in the first half of 2025. Yet, there is growing expectation of a more challenging second half of 2025 as the temporal effects of front-loading dissipate and the full impact of tariff implementation comes into play.
Regional economic overview
In this article, we focus on the economies of six countries in Southeast Asia: Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. We start by setting the scene with a regional overview of the macroeconomic outlook and financial markets (Exhibit 2).
In the following section, we focus on these six specific countries in Southeast Asia, examining their macroeconomic conditions and financial markets.
Indonesia
Indonesia’s economy accelerated in the second quarter of 2025, with GDP rising to 5.12 percent from 4.87 percent in the first quarter—the fastest pace in two years. Strong trade, driven by companies front-loading orders during the 90-day reciprocal tariff pause, fueled the upturn. Household consumption remained resilient (Exhibit 3). Sector growth was broad-based, led by tourism and manufacturing supported by firm domestic and external demand.
The strength of the second quarter helped lift economic performance in the first half of 2025. However, economists are forecasting a more challenging second half of 2025 as tariff actions begin to take effect, suggesting that additional support could be needed to sustain growth momentum in the second half of the year.2
Macroeconomic outlook
GDP: Indonesia’s GDP grew 5.12 percent in the second quarter of 2025, faster than 4.87 percent recorded in the first quarter. Sectoral growth was broad-based, with the other services segment growing the fastest at 11.31 percent because of strong domestic tourism over the school holidays, national religious celebrations, and workers taking leave. The manufacturing sector was the largest contributor to overall growth, driven by strong domestic and external demand in food and beverages, basic metals, and chemicals and pharmaceuticals.3 On the expenditure side, trade grew the most as businesses front-loaded goods bought during the 90-day pause in reciprocal tariffs during the second quarter.4
Private consumption: Household consumption strengthened slightly to 4.97 percent in the second quarter of 2025 from 4.95 percent in the first quarter. Relatively stable labor conditions and an inflationary environment continued to provide support for household spending, which remained a key driver of economic growth, contributing more than half of overall GDP.5
Trade: Indonesia’s exports strengthened in the second quarter of 2025, growing by 10.67 percent year on year compared with 6.93 percent in the previous quarter. Exports surged as businesses front-loaded the purchase of goods to take advantage of the 90-day pause in reciprocal tariffs during the second quarter.6 While China continued to be the country’s core trading partner, exports to the United States spiked, especially in June where they rose 33.5 percent year on year, with strong shipments in products such as clothing, footwear, and palm oil. Following the new tariff deal achieved in July, external analysts are expecting Indonesia’s trade surplus to narrow. Imports are forecasted to rise, while the value of exports could come under pressure due to weak price support for key exports such as commodities.7
Industrial activity: The manufacturing sector picked up pace in the second quarter of 2025, with output growing at 5.68 percent, compared with 4.55 percent in the previous quarter. The sector remained the largest contributor to GDP, accounting for 18.67 percent.8 PMI remained below the 50-point threshold for the fourth consecutive month in July, although it had improved to 49.2 from 46.9 in June. While output and new orders were still declining, the pace was slowing, indicating a gradual improvement in demand. Business confidence, however, was still low.9
Labor: The latest release of Indonesia’s National Labor Force Survey saw the unemployment rate improve slightly to 4.76 percent in February 2025 from 4.82 percent in February 2024.10 The youth unemployment rate, however, remained high at more than 17 percent because of the mismatch in skills and market demand.11 The upcoming labor survey release in the third quarter will provide a more timely gauge of labor market health. There are concerns about employment prospects and structural layoffs as the country navigates external economic headwinds, including supply chain shifts.12
Inflation: Indonesia’s inflation inched higher to 1.87 percent at the end of the second quarter of 2025, from 1.03 percent in the previous quarter. This brings Indonesia’s year-to-date inflation to 1.38 percent, slightly lower than Bank Indonesia’s (the central bank) target range of 1.50 to 3.50 percent. Almost all the expenditure groups saw price inflation, with food, beverages, and tobacco being the largest drivers of inflation.13
Financial markets
Currency: The rupiah was volatile early in the second quarter of 2025 and in mid-April hit its lowest level against the US dollar since the 1998 Asian financial crisis, before staging a recovery. By the end of the second quarter, the rupiah strengthened by 2.8 percent against the greenback and, as of mid-August, it was trading near year-end 2024 levels. Optimism about Bank Indonesia’s policy easing and clarity on US tariffs drove the recent rally, which could help bolster Indonesia’s economy.
Policy rate: Bank Indonesia cut its policy rate by 25 basis points to 5.5 percent in May 2025, after holding it steady for three meetings. With inflation expected to remain stable through 2026, this move aims to stimulate growth, support consumption and exports, and mitigate uncertainties about US tariffs.14 Following the second quarter, the central bank further cut the rate twice—once in July and the second in August, each time by 25 basis points—to 5 percent. The central bank remains dovish, hinting at further cuts to prioritize economic growth amid a soft global outlook, with the rupiah stable and inflation low.15
Capital flows: FDI into Indonesia recorded its largest fall since 2020, declining by 6.95 percent in the second quarter of 2025 year on year to approximately US $12.5 billion. This marks the second consecutive quarter of soft FDI performance, with heightened geopolitical tensions eroding the appetite for investments into the country and intensified competition between countries to attract investments. The beneficiaries of FDI during the second quarter included base metals, mining, services, transportation, warehouse, and telecommunications. China, Hong Kong, and Singapore were the largest contributors.16
Malaysia
Malaysia’s economy grew 4.4 percent year on year in the second quarter of 2025, unchanged from the previous quarter. Quarter-on-quarter growth accelerated to 2.1 percent from 0.7 percent in the first quarter. The expansion remained anchored in domestic demand, with household spending rising on the back of positive labor market conditions and income-related policy measures, which included upward revisions to the minimum wage and civil service salaries. Export growth slowed, mainly on weaker commodity-related shipments (Exhibit 4). This, however, was partly offset by steady E&E exports and robust tourism. Imports rose faster, led by demand for capital goods.
The central bank, Bank Negara Malaysia (BNM), expects trade tensions and policy uncertainties to weigh on growth going forward but sees resilient domestic demand as a buffer against external challenges. It revised its 2025 growth forecast to 4.0 to 4.8 percent, down from the previous forecast of 4.5 to 5.0 percent. In July 2025, the bank cut its policy rate by 25 basis points to 2.75 percent, the first reduction in five years, as a preemptive step to support growth amid moderate inflation and global uncertainties.17
Macroeconomic outlook
GDP: Malaysia’s GDP grew 4.4 percent year on year in the second quarter of 2025, the same as the previous quarter. Quarter on quarter, the economy expanded by 2.1 percent, a significant increase from 0.7 percent in the first quarter. The services and manufacturing sectors contributed the most to this increase, with the services sector benefiting from higher government services and consumer-related activity, and the manufacturing sector bolstered by steady growth in domestic-oriented clusters. The mining sector, however, contracted more sharply, reflecting weaker commodity production that weighed on overall growth.18
Private consumption: Private consumption continued to be a main contributor to economic growth, underpinned by favorable labor market conditions and measures to boost household income, including upward adjustments to the minimum wage and pay increases for civil servants. Household spending was higher in the second quarter, growing at 5.3 percent compared with 5.0 percent in the first quarter.19
Trade: Malaysia’s trade activities moderated in the second quarter of 2025. Export growth slowed to 2.6 percent from 4.1 percent in the first quarter, mainly due to lower commodities-related exports, despite buoyant E&E exports, and healthy tourism. Import growth accelerated to 6.6 percent from 3.1 percent, driven by strong demand for capital goods amid higher investment. The trade outlook for the rest of 2025 is likely to remain challenging as front-loading dissipates and tariffs take full effect.20
Industrial activity: The manufacturing sector remained steady although growth decelerated to 3.7 percent from 4.1 percent in the first quarter. Domestic-oriented clusters saw strong demand. Output performance, however, was affected by the mining sector’s downturn following disruptions in the production of refined petroleum.21 Manufacturing conditions improved with PMI on an upward trajectory throughout the second quarter of 2025, rising to 49.3 in June and 49.7 in July—the highest reading since February 2025. Purchasing activities rose, the category’s first increase in three years and the strongest since April 2022. New output and orders stabilized in July.22
Labor: Malaysia’s labor market remained robust with unemployment continuing to be anchored at pre-COVID-19 levels. Unemployment declined to 3.0 percent in the second quarter of 2025 from 3.1 percent in the previous quarter. Labor demand strengthened, with overall employment rising by 150,000 in the second quarter to 16.85 million. The labor participation rate improved on the historic high reached in the first quarter, growing by a further 0.1 percent in the second quarter to reach 70.8 percent.23
Inflation: Inflation slowed to 1.3 percent in the second quarter of 2025, down from 1.5 percent in the previous quarter. Lower fuel prices and slower price increases on food-related items helped moderate inflation. BNM projects 2025 inflation to average 1.5 to 2.5 percent, down from its projection of 2.0 to 3.5 percent communicated in May 2025, as external cost pressures ease and demand remains stable.24
Financial markets
Currency: In the second quarter of 2025, the Malaysian ringgit rallied 5.1 percent against the US dollar, having strengthened 0.8 percent in the previous quarter. This move was mainly due to the broad dollar weakness following expectations of subdued economic growth in the United States, the effect of trade tensions, and concerns over the United States’ fiscal sustainability.25 From July to mid-August, the ringgit held its gains and remained range-bound against the US dollar.
Policy rate: Having maintained its policy rate early in the second quarter of 2025, BNM reduced the rate by 25 basis points to 2.75 percent in July, its first policy cut in five years. With the domestic economy on a positive footing overall, coupled with inflation that has continued to moderate, the move was a preemptive measure to safeguard Malaysia’s growth prospects in the face of an uncertain global environment.26
Capital flows: Malaysia’s FDI inflows dropped sharply to US $ 381.1 million (1.61 billion ringgit) in the second quarter of 2025, from US $3.69 billion (18.4 billion ringgit) in the previous quarter. This was the FDI’s lowest level since the third quarter of 2020. Most investments targeted the services sector, particularly financial services, ICT, and data centers. Despite turbulence in early 2025, external economists attribute the decline to market volatility rather than structural issues, citing Malaysia’s diversified economy, strategic location, and robust infrastructure as key strengths.27
The Philippines
The Philippines’ economy grew at its fastest pace in a year in the second quarter of 2025, driven by a rebound in agricultural output and robust household consumption. GDP expanded by 5.5 percent, an increase of 0.1 percentage points from the first quarter. However, industrial output and exports saw slower growth because of the uncertainty around US tariff actions (Exhibit 5). The recent confirmation of tariffs on the Philippines may help reduce uncertainty and stabilize near-term trade. Inflation continued to ease, supported by a stronger peso. Foreign investment continued to shrink amid ongoing investor caution.
Overall growth for the first half of 2025 stood at 5.4 percent, close to the lower end of the government’s full-year growth target of between 5.5 to 6.5 percent. With inflation remaining low, and despite having already eased rates in April and June this year, Bangko Sentral ng Pilipinas (the central bank) may consider two further rate cuts later in 2025 to boost the economy.28
Macroeconomic outlook
GDP: Growth in the Philippines stayed firm in the second quarter of 2025. GDP grew to 5.5 percent, slightly higher than the 5.4 percent growth recorded in the first quarter. The agricultural sector surged by 7 percent, driven by improved harvests of key crops such as corn and rice. The services sector, which accounted for the largest share of GDP, accelerated to 6.9 percent growth from 6.2 percent, bolstered by strong performance in real estate and professional services. However, the industrial sector slowed to 2.1 percent growth from 4.6 percent, with key drivers such as food manufacturing, and export-oriented products such as petroleum coke and refined petroleum, chemicals, and electronics, experiencing slower growth.29
Private consumption: Household consumption rose 5.5 percent year on year in the second quarter of 2025, up from 5.3 percent in the first quarter. Food and beverages, which made up about one-third of spending, led to the gains, with strong outlays also being observed in restaurants and hotels, transport, health, and education.30 Low inflation and unemployment are expected to keep consumption supportive through 2025.
Trade: Export growth moderated to 4.4 percent in the second quarter from 7.1 percent in the first quarter. Strength in goods exports, led by semiconductors following pre-tariff ordering by US firms, was offset by a 4.2 percent decline in services exports.31 Looking ahead, the confirmation of tariffs of 19 percent being imposed on the Philippines could reduce uncertainty and may help stabilize near-term trade.32
Industrial activity: Manufacturing production in the Philippines slowed in the second quarter of 2025 amid the uncertainty that followed US tariff actions. Growth declined to 2.7 percent, down from 4.3 percent in the previous quarter. Production of food, transport equipment, and wood products provided the main support in the second quarter.33 After entering the contractionary zone in March 2025 for the first time in 19 months, PMI gradually improved. It ended the second quarter at 50.7, indicating modest growth in the manufacturing sector. New orders rose at a muted pace due to weak exports.34 July’s PMI edged up to 50.9, continuing the sector’s moderate improvement.35
Labor: Labor conditions improved slightly in the second quarter of 2025. Unemployment eased to 3.7 percent in June from 3.9 percent in March. Hiring was strongest in vehicle repair, fisheries, construction, finance, and health and social work.36
Inflation: Inflation eased to 1.4 percent in June 2025, down from 1.8 percent in March, bringing the average inflation for the first half of 2025 to 1.8 percent, below the central bank’s target range of 2.0 to 4.0 percent.37 The central bank projects inflation to remain slightly below target for 2025 and expects it to stay within the government’s target until 2027.38 In July, inflation further declined to 0.9 percent, the slowest pace in nearly six years, driven by moderating utility costs and food prices.39
Financial markets
Currency: The Philippine peso gained 2.9 percent against the US dollar in the second quarter of 2025, following an appreciation of nearly 2.0 percent in the first quarter. By mid-August, however, it had pared back its gains to close to 2 percent. Further declines would likely lift import costs and inflation. A prolonged weakness could trigger more forceful currency operations by the central bank.40
Policy rate: The central bank was the first in Southeast Asia to ease its policy rate following the US administration’s tariff announcement in early April. It cut the policy rate by 25 basis points to 5.5 percent on April 10, then performed two further cuts in July and August (by 25 basis points each) to bring the policy rate to 5.0 percent—the lowest since November 2022. With inflation well anchored, the focus has shifted to supporting the economy amid potential global deceleration, and the possibility of further rate cuts in the near term has not been discounted.41
Capital inflows: Foreign investment approvals in the second quarter of 2025 fell to US $1.2 billion (67.38 billion peso), a 64.4 percent decline from the same period in 2024. This follows an 82 percent drop in the first quarter to US $510 million (27.99 billion peso). More than 80 percent of these investments were in the energy sector. Administrative support services and manufacturing received the next largest approvals. Despite the smaller decline compared with the first quarter, the figures reflect ongoing investor caution and a wait-and-see approach in the face of global trade uncertainties.42
Singapore
Singapore’s economy recorded robust growth in the second quarter of 2025 as businesses front-loaded activities, temporarily boosting output and exports (Exhibit 6). The economy expanded by 4.4 percent year on year, up from 4.1 percent in the previous quarter. On a quarter-on-quarter basis, it grew 1.4 percent, reversing a 0.5 percent contraction in the first quarter. Private consumption also showed positive trends, supported by a stable labor market and moderate inflation.
The healthy performance of the second quarter contributed to 4.3 percent growth in the first half of 2025. After downgrading its growth forecast in April, Singapore’s Ministry of Trade and Industry revised its projection for the second time, increasing it from 0.0 to 2.0 percent to between 1.5 and 2.5 percent. Its most recent forecast reflects the strong first-half performance while anticipating potential softening in the global and domestic economies in the second half of 2025 due to the full effect of tariff implementation.43
Macroeconomic outlook
GDP: In the second quarter of 2025, Singapore’s economy expanded 4.4 percent year on year, following 4.1 percent growth in the first quarter. On a quarter-on-quarter seasonally adjusted basis, the economy grew 1.4 percent, a significant turnaround from the previous quarter’s 0.5 percent contraction. The primary drivers of this growth were the wholesale trade, manufacturing, and finance and insurance sectors.
The manufacturing sector expanded 5.2 percent year on year, up from 4.7 percent in the first quarter, supported by significant output growth in the transport engineering, precision engineering, and electronics clusters. The services sector grew 4.3 percent year on year, supported by gains in all segments except food and beverage services. The construction sector also performed well, growing 6.0 percent year on year, accelerating from 4.9 percent in the previous quarter.44
Private consumption: Private consumption expenditure rose 3.9 percent year on year in the second quarter of 2025, extending the improvement from 2.2 percent in the fourth quarter of 2024 and 3.3 percent in the first quarter of 2025.45 Stable employment conditions and largely contained inflation remained key to bolstering consumer confidence and, in turn, private spending.
Trade: Singapore’s total merchandise trade increased by 7.1 percent year on year in the second quarter, up from the 4.8 percent growth in the previous quarter.46 Non-oil domestic exports (NODX) rose 7.1 percent, led by strong electronics shipments, including PCs, integrated circuits, and disk media products. This marked the fifth consecutive quarter of expansion. Nonelectronic NODX also grew for the second straight quarter. Overall, NODX outperformed expectations in the first half of 2025 as businesses front-loaded purchases ahead of the US administration’s tariffs announcement in April. With reciprocal tariffs in effect from August 7, trade growth could taper in the near term.47
Industrial activity: After two quarters of moderation, manufacturing output expanded by 5.2 percent in the second quarter of 2025. The transport engineering cluster led the pack, with increased demand in the aerospace segment for aircraft parts and maintenance, repair, and overhaul jobs. Precision engineering and electronics also performed strongly, while biomedical manufacturing rebounded with 4.9 percent growth after a previous contraction.48 The manufacturing PMI began the second quarter at 49.6, close to its lowest in two years. Supported by stronger orders, outputs, and exports, it recovered to 50.0 in June, but dipped again to 49.9 in July, reflecting ongoing volatility as a consequence of tariff actions.49
Labor: Singapore’s labor market remained stable in the second quarter of 2025, with total employment rising by 8,400 and retrenchments decreasing. The unemployment rate, however, edged up 0.1 percentage points to 2.1 percent. Resident employment showed signs of softening in outward-oriented sectors such as professional services and the information and communications sector. Higher-recruitment activities were seen in health and social services and the financial services sector.50 Despite the cautious hiring climate caused by global economic headwinds, employment is expected to grow, albeit at a slower pace than last year.51
Inflation: Inflation was 0.8 percent year on year in the second quarter, moderating from 1.0 percent in the preceding quarter. Food, housing and utilities, and transport saw slower price increases, while prices continued to fall across the clothing and footwear, information and communication services and equipment, and recreation segments.52 Inflation is expected to remain subdued in the near term, given stable global commodity prices and moderate domestic demand pressures.53
Financial markets
Currency: The Singapore dollar, one of Asia’s top performers against the US dollar in the first quarter of 2025, continued its ascent in the second quarter. It appreciated 2.36 percent, following a 2.20 percent rise in the first quarter. Singapore’s stability and strong fundamentals make the Singapore dollar an attractive haven, which could provide continued support for the currency.54
Policy rate: The Monetary Authority of Singapore (the central bank) kept its monetary stance unchanged in its July 2025 policy announcement, after easing in January and April. The decision came after global growth proved to be more resilient than expected in the first half of 2025 and the risk of a significant slowdown in the near term seemed less likely, given the de-escalation of trade tensions. The central bank, however, cautioned that growth may slow for Singapore in the second half of 2025, although inflation is likely to remain contained.55 The next policy announcement is slated for October 2025.
Capital inflows: Singapore’s FDI net inflow declined slightly to US $43.5 billion (55.1 billion Singapore dollars) in the second quarter of 2025, from US $44.1 billion in the previous quarter.56 The first half of 2025 indicated resilience in FDI and underscored the country’s strength as an investment destination, despite geopolitical and macroeconomic challenges. Singapore is likely to continue to attract investments in high-value-added manufacturing and emerging growth areas such as AI, digitalization, and climate technologies.57
Thailand
Thailand’s economic growth slowed to 2.8 percent in the second quarter of 2025, down from 3.2 percent in the first quarter and 3.3 percent in the fourth quarter of 2024. Growth drivers were mixed: While exports and investments performed well and manufacturing strengthened, consumption growth weakened (Exhibit 7).
To support the economy and boost consumption, the central bank, Bank of Thailand (BOT), has implemented three rate cuts this year, including one in the second quarter and another in August. The Thai baht has appreciated strongly alongside regional currencies, with the US dollar weakening due to uncertain growth prospects for the United States and speculation of Federal Reserve rate cuts.
Macroeconomic outlook
GDP: Thailand’s economy grew at 2.8 percent in the second quarter of 2025, easing from the 3.2 percent year-on-year growth recorded in the first quarter. The services sector continued to be a drag on economic performance, with growth decelerating to 3.5 percent from 4.1 percent in the first quarter. Tourism slowed across both domestic and international arrivals, with the latter impacted by strong regional competition from China, Japan, and Vietnam.58 Manufacturing output strengthened, and the agricultural sector grew by a steady 6 percent, with significantly stronger production of key crops, such as rice, fruits, and palm oil.59
Private consumption: Private consumption expenditure grew 2.1 percent in the second quarter of 2025, down from 2.5 percent in the first quarter. This slowdown was primarily due to reduced growth in expenditure on services, including accommodation, food services, and transport. Conversely, expenditure on durable goods saw a significant rebound, fueled by a strong recovery in vehicle purchases. The consumer confidence index declined to 48.0 from 51.5, reflecting cautious consumer sentiment.60
Trade: The exports sector continued its turnaround, growing 15 percent in the second quarter of 2025, the same rate as in the first quarter. This was the fifth consecutive quarter of expansion, an acceleration spurred by front-loading ahead of the expiration of the US reciprocal tariff suspension. Outperformers included exports of computers, integrated circuits and parts, computer parts, machinery, vehicle parts, and rubber. Imports rose faster at 16.8 percent, while the overall trade surplus narrowed to US $5.3 billion (172.0 billion baht) from US $8.2 billion in the first quarter.61
Industrial activity: The manufacturing sector expanded for a fifth straight quarter, after nearly three years of contractions before rebounding in the second quarter of 2024. Growth improved to 1.7 percent in the second quarter of 2025, from 0.9 percent in the first quarter. Export-oriented segments, such as electronics, computers, and rubber products, supported output growth. Domestic-oriented manufacturing, such as refined petroleum products, beverages, and chemicals, weakened.62 The manufacturing PMI returned to the expansionary zone in the second quarter, gradually improving from 49.9 and 49.5 in March and April, respectively, to 51.7 and 51.9 in June and July, respectively. New orders drove this growth, with export orders showing cautious improvement in global trade uncertainty.63
Labor: The labor market remained stable with an unemployment rate of 0.91 percent in the second quarter of 2025, slightly higher than 0.89 percent in the previous quarter. Wages grew moderately and labor force participation rates held firm.64 While the immediate-term outlook appears steady, external headwinds could impact job security and employment practices, with businesses potentially shifting to contracting and part-time roles.65
Inflation: Headline inflation in the second quarter of 2025 was –0.3 percent, the first time it has deflated in five quarters. Core inflation stood at 1.0 percent, 0.1 percentage points lower than the first quarter. The decline in headline inflation was driven by lower energy prices and subdued consumer demand. For the remainder of 2025, BOT forecasts headline inflation to remain within the range of 0.0 to 0.5 percent.66
Financial markets
Currency: The Thai baht strengthened 5.1 percent against the US dollar in the second quarter of 2025, and subsequently remained range-bound near 32.5 baht to the US dollar up to the end of August. The baht’s appreciation mirrored regional trends and was largely driven by the US dollar, which weakened following expectations of softer performance in the United States and anticipated Federal Reserve rate cuts.67 Analysts project that the baht may strengthen further toward 31.5 baht per US dollar. This has raised concerns about the competitiveness of Thailand’s exports, and there is speculation that the BOT might intervene to curb the rapid appreciation of the country’s currency.68
Policy rate: In the second quarter of 2025, the BOT cut its policy rate by 25 basis points to 1.75 percent, its second reduction of the year. It followed with a similar third cut in August, bringing Thailand’s policy rate to a near three-year low of 1.5 percent. The cuts were aimed at boosting consumption and supporting small businesses and the broader economy. The central bank forecasts that the economy may grow slower in the second half of 2025 due to uncertainties around US trade policies and softening tourism arrivals.69 The next policy meeting will take place in October, when further easing remains a possibility.70
Capital inflows: Thailand continued to receive strong foreign investment interest, with US $14.5 billion (469.9 million baht) in FDI recorded in the second quarter of 2025, almost double the previous quarter’s US $8.3 billion. Combining both quarters, the first-half performance marked a 132 percent FDI growth over the same period in 2024. The digital, E&E, and petrochemical and chemical industries were significant beneficiaries of investment in the first half of the year, with China, Hong Kong, and Singapore forming Thailand’s core investor base.71
Vietnam
Vietnam’s economy accelerated in the second quarter of 2025, growing at 7.96 percent, the second-best quarterly performance since 2020. This, in turn, helped the country achieve its strongest first-half performance in over a decade. Growth was broad-based: Industrial output led on the supply side, consumption and investment were firm on the demand side, and external trade recovered (Exhibit 8).
The strong second-quarter performance boosted first-half economic growth to 7.52 percent, nearing the government’s target of 8.00 percent for 2025. It provided strong momentum in the lead-up to the second half of the year, and highlighted Vietnam’s resilience in the face of geopolitical and policy uncertainties.
Macroeconomic outlook
GDP: Vietnam’s GDP growth in the second quarter of 2025 was robust, registering a year-on-year increase of 7.96 percent, an improvement from 6.93 percent growth attained in the first quarter. The services sector contributed the largest share to GDP, growing 8.46 percent, inching higher than the 8.21 percent of the previous quarter. Growth in areas such as transportation and tourism contributed to the improved performance. The manufacturing sector was also a key driver of overall growth, expanding by 10.10 percent in the second quarter, up from 9.28 percent in the first, and contributing 2.55 percentage points to GDP growth.72
Private consumption: Consumer spending remained resilient. Consumption increased in the first six months of 2025 by 7.95 percent on a year-on-year basis, stronger than the 7.45 percent attained in the previous quarter.73 Stable consumer demand continued to remain supported by strong labor conditions and inflation, which had largely been contained.
Trade: Vietnam’s exports performance strengthened in the second quarter of 2025, growing at 18.0 percent, well above the 10.5 percent recorded in the first quarter. Urgency to front-load orders during the quarter following the pause in tariff action helped boost exports. The United States remained Vietnam’s largest exports market, accounting for one-third of Vietnam’s total export of goods for the first six months of 2025.74 Vietnam secured an early trade deal with the United States in July, lowering tariffs to 20 percent from 46 percent. As key exporters of apparel, footwear, and electronics, businesses in Vietnam are waiting for clarity on the full trade terms, which could shape future exports performance.75
Industrial activity: Industrial momentum strengthened, with the Index of Industrial Production (IIP) increasing by 9.2 percent year on year in the first half of 2025, compared with 7.8 percent in the first quarter. The manufacturing and processing sector continued to be the primary growth engine, growing by 11.1 percent.76 PMI rose to 52.4 in July from 48.9 in June, marking the first manufacturing expansion in four months and the strongest improvement of 2025 so far. This rebound from the first quarter’s drop, where PMI fell from 50.5 in March to 45.6 in April after the US tariff announcements, indicated a recovery in the manufacturing sector and renewed business confidence.77
Labor: The labor market remained stable in the second quarter of 2025. The unemployment rate inched slightly up to 2.24 percent from 2.20 percent in the first quarter. Wage growth remained steady, having increased by 10.1 percent compared with the same period in 2024.78
Prices: Inflation continued to improve, increasing to 3.31 percent in the second quarter from 3.22 percent in the first.79 Vietnam’s dependence on imported raw materials and the strengthening of the US dollar increased input costs, putting pressure on domestic prices. The government remains committed to keeping inflation in check, with the latest numbers still below the 4 to 5 percent target range that was set by the National Assembly for 2025.80
Financial markets
Currency: The Vietnam dong continued to depreciate against the US dollar, falling a further 1.99 percent against the greenback in the second quarter of 2025. With Vietnam’s heavy reliance on exports, trade risks put the dong under pressure. It is likely to remain weak until the trade tension eases.81
Policy rate: The State Bank of Vietnam (the central bank) maintained its monetary policy stance, keeping policy rates unchanged in the second quarter, focusing on supporting economic growth while managing inflation.82
Capital inflows: Foreign investment has been a bright spot for Vietnam in 2025, with the country continuing to attract sizeable foreign investment. For the first half of the year, total registered foreign investment rose 32.6 percent year on year to US $21.5 billion. Realized investments stood at US $11.72 billion, an increase of 8.1 percent over the same period in 2024. This was the highest amount attained in the first half of the year for the past five years.83 The manufacturing and processing sector took the lion’s share of foreign investment. At US $12 billion, it represented a 32 percent increase year on year. The rise in foreign investment underscored international confidence in Vietnam’s economy and signaled strong momentum for companies to expand and scale operations.84
