Southeast Asian economies ended 2025 on a strong note, with growth accelerating in almost all countries in the fourth quarter. Vietnam solidified its position as the region’s top performer, with growth expanding to over 8 percent. Malaysia and Singapore also gained significant momentum, driven by a strong contribution from the manufacturing and services sectors. Indonesia posted its fastest growth in over two years, and Thailand rebounded from a soft third quarter. In contrast, the Philippines experienced a significant slowdown, with its GDP falling to its weakest rate since the COVID-19 pandemic as domestic challenges dampened consumer and business confidence (Exhibit 1).1
Core growth engines fired strongly across the region, marking a notable rebound from the third quarter. Industrial production and exports surged, propelled by robust global demand for electronics and AI-related components. Private consumption, a key pillar of domestic demand, also strengthened across most countries, supported by stable labor markets.
This renewed confidence was mirrored in capital flow, as investment commitments surged in the fourth quarter, particularly in high-value sectors. While most of the region’s central banks held rates steady, the Philippines’ and Thailand’s remained accommodative and continued with downward revisions of rates in the fourth quarter. The region demonstrated remarkable resilience to end the year, with the fourth quarter’s broad-based acceleration providing a strong foundation for 2026.
However, this outlook could be tempered by significant external risks, such as the conflict in the Middle East. Impact on Southeast Asia from the conflict is already evident, from higher energy prices and supply chain disruptions to financial market volatility. A prolonged conflict could drive further market instability and stifle growth.2
Even though domestic growth engines currently are performing well, navigating these potential headwinds will be critical to sustaining Southeast Asia’s trajectory.
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 (Exhibit 2).
In the following section, we focus on these six countries in Southeast Asia, examining their macroeconomic conditions and financial markets.
Indonesia
Indonesia closed 2025 on a strong note, with GDP growth accelerating to 5.39 percent in the fourth quarter, the fastest pace since the third quarter of 2022. Household consumption, which accounts for just over half of the country’s economic activity, increased at its quickest rate in over two years, and investments rebounded. However, production and exports continued to weigh on growth due to weaker external demand (Exhibit 3).
The robust fourth-quarter performance lifted Indonesia’s annual GDP growth to 5.11 percent. Although this fell short of the government’s 5.2 percent target, it marked the highest annual growth rate in three years. The economy’s expansion in 2025 was primarily driven by strong household consumption, increased government spending, and a recovery in investments. Looking ahead, the government has set a GDP growth target of 5.4 percent for 2026.
Achieving this will require sustaining the current momentum and fostering a recovery in export-driven, production-oriented sectors, supported by improved external demand.4
Macroeconomic outlook
GDP: Indonesia’s economy expanded by 5.39 percent in the fourth quarter, the quickest growth attained since 2022’s third quarter. Among key sectors, manufacturing, wholesale and retail trade, agriculture, and construction recorded growth, while the mining sector contracted due to a decline in commodity output and softer prices. Transport and storage, information and communications, and financial services were the strongest performers in the services sector. On the expenditure side, household consumption and investment growth accelerated, but export growth slowed significantly.5
Private consumption: Household consumption growth edged up to 5.11 percent in the fourth quarter, improving from 4.89 percent in the previous quarter—the fastest growth in more than two years. As a core driver of Indonesia’s economy, accounting for just over half of overall economic growth, private consumption’s latest figures highlighted the resilience of consumer spending, despite mounting pressures from rising inflation.6
Trade: Indonesia’s exports increased moderately to 3.25 percent in the fourth quarter, compared to 9.91 percent in the third quarter.7 Demand for exports slowed after a period of front loading earlier in 2025 and the subsequent onset of reciprocal tariffs, while a normalization in commodities prices impacted export gains. Looking forward, exports could gradually improve once trade pressures have eased and the recently announced reciprocal trade deal with the United States comes into effect.8
Industrial activity: Manufacturing output continued to moderate for two consecutive quarters, with fourth-quarter growth at 5.40 percent, compared to 5.54 and 5.68 percent in the third and second quarters, respectively.9 Prospects could stabilize, as Indonesia’s PMI rose from 50.4 in September to 51.2 in December 2025. That marked the fifth consecutive month of factory activity expansion, underpinned by stronger new orders, employment, and purchasing.10
Labor: Indonesia’s latest National Labor Force Survey in August 2025 reported a slight increase in the unemployment rate, rising to 4.85 percent from 4.76 percent in February 2025. While the overall employment landscape appeared relatively stable, youth unemployment remained a significant challenge, with 16.89 percent of individuals aged 15 to 24 unable to secure employment.11
Inflation: Indonesia’s inflation rose to 2.92 percent at the close of the fourth quarter, marking the third consecutive quarter-end increase for the year. Although still within the central bank’s (Bank Indonesia) target range of 1.5 to 3.5 percent, this figure reflected a significant jump from 1.57 percent recorded at the end of 2024. The increase was primarily driven by a surge in gold prices and higher costs for key food staples, including rice, chili, and fresh fish.12
Financial markets
Currency: The Indonesian rupiah depreciated by 1.1 percent in the fourth quarter, following a sharper decline of 3.1 percent in the previous quarter. Concerns over domestic policy direction, central bank autonomy, and fiscal sustainability fueled capital outflows, pushed the rupiah to a record low against the US dollar by mid-January 2026. While the currency may remain under pressure in 2026, Bank Indonesia’s commitment to intervene and stabilize the rupiah could offer some relief.13
Policy rate: Bank Indonesia maintained its policy rate throughout the fourth quarter to support the stability of the rupiah, which ranked among the weakest-performing currencies in emerging Asia in 2025. This followed a series of rate cuts totaling 150 basis points between September 2024 and September 2025, aimed at stimulating the economy.14 Bank Indonesia has continued to hold rates steady after its January and February 2026 policy meetings, but remains open to further rate cuts in the near term to bolster economic growth, given that inflation is expected to remain contained within the target range.15
Capital flows: FDI into Indonesia rebounded in the fourth quarter, marking its first growth in three quarters with a year-on-year increase of 4.3 percent to 256.3 trillion rupiah (US $15.2 billion). This recovery lifted total FDI for 2025 to 900.9 trillion rupiah, a modest 0.1 percent increase compared to 2024, despite a challenging investment climate shaped by global geopolitical uncertainties and trade tensions. The base metal and mining sector attracted the largest share of FDI, with China, Hong Kong, and Singapore emerging as Indonesia’s top FDI contributors.16
Malaysia
Malaysia’s economy ended 2025 on a strong note, recording 6.3 percent growth in the fourth quarter, the highest quarterly performance in the past three years. This increased growth was driven by robust household demand, supported by favorable labor market conditions and stable prices, as well as a sharp increase in export performance (Exhibit 4). FDI also rebounded, tripling from the previous quarter.
The solid fourth-quarter performance brought Malaysia’s annual GDP growth for 2025 to 5.2 percent, slightly above 5.1 percent in 2024, and exceeding the official forecast range of 4.0 to 4.8 percent. Looking ahead, Bank Negara Malaysia, the central bank, remains optimistic about sustaining growth momentum in 2026, underpinned by strong domestic demand and exports. However, growth is projected to be more moderate at 4.0 to 4.5 percent, reflecting uncertainties surrounding US tariff policies.17
Macroeconomic outlook
GDP: Malaysia’s GDP growth accelerated to 6.3 percent year on year in the fourth quarter, up from 5.4 percent in the third quarter. Most sectors recorded stronger expansion, except mining and construction. The services and manufacturing sectors remained major growth drivers, supported by robust performance in consumer-related industries, ICT, and electrical and electronics (E&E) production. The agriculture sector rebounded, driven by higher palm oil production. The construction sector remained resilient despite a slight moderation in growth, yet the mining sector experienced a significant slowdown due to reduced oil and gas output during the quarter.18
Private consumption: Private consumption remained a key driver of economic growth and continued to see sustained expansion, supported by robust labor market conditions, income-related policy measures, and government cash transfers to households. Household spending grew by 5.3 percent in the fourth quarter, a 0.3 percent increase from the third quarter, following higher household spending in transport, housing, and utilities.19
Trade: Malaysia’s trade activity strengthened in the fourth quarter. Exports grew at an accelerated pace of 11.0 percent, up from 6.8 percent in the third quarter, driven by a strong performance in the E&E sector and higher commodity exports. Import growth also surged, reaching 12.6 percent in comparison to 0.4 percent in the third quarter, supported by increased demand for intermediate goods to sustain economic activity and capital goods tied to ongoing investment projects.20
Industrial activity: The manufacturing sector increased by 6.1 percent in the fourth quarter, from 4.1 percent in the previous quarter. Stronger production in the E&E segment, following higher demand for tech products, helped prop up growth.21 Manufacturing conditions showed signs of stabilizing, with the PMI entering the expansionary zone in the fourth quarter. December’s PMI landed at 50.1, boosted by a solid uptick in employment numbers as moderation in output eased, although there were signs of softening in new orders.22
Labor: Malaysia’s labor market stayed robust, with unemployment continuing to be anchored at pre-COVID-19 levels. Unemployment declined by 0.1 percent to 2.9 percent in the fourth quarter. Labor demand strengthened, with overall employment increasing by 133,500 in the fourth quarter to reach 17.1 million. The labor participation rate remained unchanged at 70.9 percent, staying at the historic high set in the third quarter.23
Inflation: Inflation remained steady in the fourth quarter at 1.3 percent for the third consecutive quarter. The quarter saw lower electricity and petrol prices, driven by reduced power generation costs and the implementation of the targeted RON95 fuel subsidy.24 For the full year 2025, inflation averaged 1.4 percent and is expected to remain moderate in 2026 as global cost pressures continue to stay contained.25
Financial markets
Currency: The Malaysian ringgit continued to strengthen against the US dollar, appreciating by 3.9 percent in the fourth quarter. This performance was supported by easing risks from tariff uncertainties and a positive domestic economic outlook, which bolstered investor confidence. The fourth-quarter appreciation built on the marginal 0.05 percent gain recorded in the third quarter. For the full year 2025, the ringgit appreciated by 10.2 percent against the greenback, with the resilient domestic fundamentals providing strong support during the year.26
Policy rate: Following its decision to cut the policy rate by 25 basis points in the third quarter of 2025, which was the first rate cut in five years, Bank Negara Malaysia maintained the rate at its subsequent policy meetings in September and November 2025, as well as in January 2026. The decision to hold rates reflects Bank Negara Malaysia’s confidence following the country’s strong economic growth in 2025, sustained positive momentum into 2026, and stable inflationary conditions.27
Capital flows: Malaysia’s FDI inflows rebounded strongly in the fourth quarter, surging more than threefold from the previous quarter to 27.8 billion ringgits (about US $7.17 billion). This represented a sharp 48.7 percent year-on-year increase, driven primarily by robust investments in the services sector, particularly in ICT and financial services. For the full year 2025, FDI inflows totaled 53.5 billion ringgits, marking a 3.8 percent increase compared to 2024.28 Investor confidence improved following the resolution of tariff uncertainties earlier in 2025, while strong investment momentum—supported by political stability and a strategic focus on high-value, high-technology, and digital-driven sectors—positions Malaysia favorably for 2026.29
The Philippines
The Philippine economy grew by 3 percent in the fourth quarter of 2025, its slowest pace since the first quarter of 2021. Consumer and investor confidence were dampened by a controversy involving public infrastructure projects, while a series of natural disasters further disrupted economic activity. The services sector, a key driver of the economy, experienced slower growth, and the industrial sector contracted. Household consumption also recorded its weakest growth since the post-COVID-19 pandemic, although exports were a bright spot, with growth accelerating during the fourth quarter (Exhibit 5).
The sluggish fourth-quarter performance weighed on the Philippines’ full-year economic growth, which reduced to 4.4 percent in 2025, below the government’s target range of 5.5 to 6.5 percent and the weakest annual expansion in five years.
Macroeconomic outlook
GDP: GDP growth slowed to 3 percent in the fourth quarter, marking the weakest quarterly performance since the COVID-19 pandemic. The downturn was driven by the ongoing graft investigation into infrastructure projects and disruptions caused by typhoons, which dampened consumer and business confidence. The services sector, which constitutes two-thirds of the country’s GDP, saw growth moderate to 5.2 percent from 5.5 percent in the third quarter. The industrial sector, accounting for 25.0 percent of the economy, contracted by 0.9 percent. On the expenditure side, household consumption recorded its slowest growth since the first quarter of 2021, while exports offered a silver lining, accelerating to 13.2 percent growth in the fourth quarter. For the full year 2025, the Philippine economy expanded by 4.4 percent, the slowest annual growth in five years, falling short of the government’s target range of 5.5 to 6.5 percent.30
Private consumption: Household consumption growth, the primary driver of the Philippine economy and accounting for more than 70.0 percent of GDP, slowed further to 3.8 percent in the fourth quarter, from 4.1 percent in the previous quarter. This marks the weakest quarterly performance since the first quarter of 2021.31 Consumer confidence remained subdued amid ongoing uncertainty surrounding employment and income prospects. On an annual basis, household consumption growth has continued to moderate since 2022, expanding by 4.6 percent in 2025.32
Trade: Exports sustained their recovery momentum, strengthening for the third consecutive quarter to reach 13.2 percent growth in the fourth quarter, up from 7.4 percent in the previous quarter. Growth was primarily driven by goods exports, which surged to 22.8 percent from 11.6 percent in the prior quarter, bolstered by robust performance in the E&E sector, machinery and transport equipment, and banana exports. For the full year 2025, exports grew by 8.1 percent, accelerating from the 3.3 percent growth recorded in 2024.33
Industrial activity: Manufacturing growth increased slightly to 1.6 percent in the fourth quarter, up from 1.2 percent in the third quarter. However, this remains below the 2.7 percent and 4.3 percent growth recorded in the earlier quarters of the year.34 In 2025, the manufacturing sector experienced significant volatility, driven by external headwinds that created uncertainties in both demand and production. This was reflected in fluctuating PMI readings, which alternated between expansion and contraction zones throughout the year. By the end of the fourth quarter, the PMI returned to the expansionary zone, rising to 50.2 from 49.9 in the third quarter’s contractionary zone. New orders improved for the first time in four months, but it remains uncertain whether this momentum can be sustained. The sector’s growth will continue to rely heavily on local demand, as external demand remains subdued.35
Labor: The labor market appeared soft as unemployment inched higher to 4.4 percent at the end of the fourth quarter, from 3.8 percent in the third quarter.36 This followed a sharp contraction in construction sector employment as public construction projects declined following a reduction in government spending on public infrastructure. In 2025, unemployment averaged 4.2 percent, higher than the 3.8 percent recorded in 2024. Job creation increased by 4.4 percent for the year, the lowest growth in five years and falling short of the government’s target of 5.5 to 6.5 percent growth for 2025.37
Inflation: Inflation edged up slightly to 1.8 percent at the end of the fourth quarter, compared to 1.7 percent in the third quarter. However, on an annual basis, inflation eased significantly to 1.7 percent in 2025, down from 3.2 percent in 2024—a nine-year low. This decline reflects moderating price growth across key commodity groups, including food, nonalcoholic beverages, restaurants, and accommodation. Looking ahead, inflationary pressures are expected to remain subdued, though a slight uptick cannot be ruled out.38
Financial markets
Currency: The Philippine peso weakened by 1.3 percent against the US dollar in the fourth quarter, following a sharper depreciation of 4.6 percent in the third quarter. This decline was driven by concerns over slowing economic growth and governance challenges in the Philippines, compounded by the broader strengthening of the US dollar.39
However, since the start of 2026, the peso has rebounded, appreciating by 2.1 percent to reach a four-month high by mid-February. This recovery has been supported by a weaker US dollar, which has come under pressure due to a recent US tariff ruling, heightened geopolitical tensions, and growing expectations of monetary easing by the US Federal Reserve.40
Policy rate: The central bank, Bangko Sentral ng Pilipinas, reduced its policy rate by 25 basis points in October 2025, followed by two additional cuts in December 2025 and February 2026. The latest reduction brought the policy rate to 4.25 percent, its lowest level since October 2022. These rate cuts were implemented in response to weaker investor and consumer confidence, which have contributed to slower than expected economic growth. The outlook for recovery remains uncertain, and Bangko Sentral ng Pilipinas has signaled its willingness to further adjust rates to support growth, provided inflation remains under control.41
Capital inflows: After declining by 48.7 to 82.0 percent in each of the first three quarters of 2025, foreign investment approvals in the Philippines rebounded sharply in the fourth quarter, growing by 79.1 percent to 103.33 billion peso (US $1.79 billion). This marked the fastest quarterly growth since the third quarter of 2024, with over 80 percent of approved investments directed toward the energy, manufacturing, and information and communication sectors.
However, the strong fourth-quarter recovery was not enough to offset the steep declines earlier in 2025. Total foreign investment approvals for the year fell by 50.1 percent year on year to US $4.72 billion, the sharpest annual drop in five years. Investor confidence in the Philippines remained subdued throughout the year, weighed down by global trade uncertainties, natural disasters, and public sector controversies.42
Singapore
Singapore’s economy ended 2025 on a strong note, with fourth-quarter GDP growth of 6.9 percent year on year, the highest quarterly growth rate of the year. Growth was broad-based across all sectors, with the manufacturing sector leading the way—it expanded by 18.8 percent, driven by robust demand for AI-related electronics, marking one of its strongest performances in the past three years.
The surge in electronics demand also fueled a strong rebound in NODX (Exhibit 6). Foreign investments performed well, with solid inflows into the electronics and biomedical manufacturing sectors. Even with inflation edging higher, private consumption growth improved slightly, supported by a stable labor market.
Building on the strong momentum at the end of 2025, the Ministry of Trade and Industry has revised its 2026 growth forecast upward to a range of 2 to 4 percent, from the previous 1 to 3 percent. Growth in 2026 is expected to be driven by strong investments in AI and the robust electronics sector, and supported by an improving global economic outlook. However, overall growth in 2026 is likely to moderate compared to 2025, as the full-year impact of tariffs and ongoing geopolitical tensions weigh on the economy.43
Macroeconomic outlook
GDP: Singapore’s economy expanded by 6.9 percent year on year in the fourth quarter, increasing from the 4.6 percent growth recorded in the third quarter. All sectors contributed to the expansion, with manufacturing, wholesale trade, and finance and insurance emerging as the top three drivers. The manufacturing sector was a standout performer, posting a robust 18.8 percent year-on-year increase, fueled by strong demand for AI-driven electronics, as well as growth in biomedical manufacturing and transport engineering.
The strong fourth-quarter performance lifted Singapore’s full-year economic growth to 5 percent in 2025, exceeding the government’s forecast of 4 percent. However, this marked a slight moderation from the 5.3 percent growth recorded in 2024. Consistent with the fourth quarter, manufacturing, wholesale trade, and finance and insurance were the key growth engines for the year.44
Private consumption: Private consumption growth accelerated to 3.9 percent year on year in the fourth quarter from 3.6 percent in the previous quarter, supported by higher transport and recreation and culture spending.45
Trade: Singapore’s total merchandise trade growth increased to 14.5 percent in the fourth quarter, up from the 8.4 percent growth recorded in the previous quarter. The key NODX segment staged a strong recovery, expanding by 12.7 percent and reversing the 3.4 percent contraction seen in the third quarter. This rebound was driven by robust demand in the electronics sector. For the full year 2025, NODX grew by 4.8 percent, significantly outpacing the 0.2 percent growth in 2024.46 The strong trade performance, coupled with the ongoing AI-driven demand boom, has bolstered confidence in Singapore’s exports outlook, prompting an upward revision of the 2026 growth forecast for NODX to between 2 and 4 percent, from the previous range of 0 to 2 percent. Electronics exports, including semiconductors, servers, integrated circuits, and personal computers, are expected to remain key drivers of NODX growth.47
Industrial activity: Manufacturing sector output surged by 18.8 percent in the fourth quarter, a threefold increase from the 5.0 percent expansion recorded in the third quarter. This growth was driven by strong demand for pharmaceuticals and AI-related electronics, as well as higher activity in the transport engineering cluster. Despite tariff uncertainties earlier in 2025, external demand remained resilient, enabling the manufacturing sector to grow by 8.7 percent for the year, outpacing the 3.8 percent growth recorded in 2024. Biomedical manufacturing, electronics, and transport engineering posted double-digit growth in 2025.48 The PMI remained in expansionary territory throughout the fourth quarter, closing at 50.3, a slight improvement of 0.2 points from the third quarter. This was supported by stronger factory activity, with notable increases in new orders and output.49
Labor: Singapore’s unemployment rate held steady at 2 percent in the fourth quarter, although fewer jobs were created compared to the previous quarter. On an annual basis, the labor market remained stable, although there are signs of softening. While more jobs were created in 2025 compared to the previous year, retrenchments increased from 13,020 in 2024 to 14,490 in 2025, accompanied by a rise in the unemployed population.50 Looking ahead, companies appear to be adopting a more cautious approach to hiring, as the share of companies expecting to hire declined slightly in the fourth quarter of 2025 compared to the third quarter. Hiring prospects remained stronger in growth industries such as software development and precision engineering. It remains to be seen what the impact of the growing use of AI will be on the workforce. However, overall retrenchment levels are expected to remain low.51
Inflation: After three consecutive quarters of price easing, inflation rose to 1.2 percent in the fourth quarter, up from 0.6 percent in the third quarter. For 2025, inflation averaged 0.9 percent, significantly lower than the 2.4 percent recorded in 2024. The greatest price increases occurred in healthcare and transport, driven by higher health insurance premiums and rising car prices, as well as increased fares for buses, trains, and point-to-point travel. These increases were partially offset by price declines in categories such as clothing and footwear, recreation, sports and culture, and information and communications.52 Looking ahead, the inflation outlook for 2026 appears stable. The Monetary Authority of Singapore (MAS), the central bank, expects inflation to trend higher but remain contained, with an average range of 1 to 2 percent.53
Financial markets
Currency: The Singapore dollar traded within a narrow range and maintained its strength against the US dollar during the fourth quarter. Over 2025, the currency appreciated by 6.2 percent against the greenback, supported by Singapore’s strong fiscal discipline and robust economic performance.54 This upward momentum has carried into 2026, with the Singapore dollar reaching an 11-year high against the US dollar by the end of January 2026.55
Policy rate: The MAS maintained its monetary policy stance in its October 2025 and January 2026 decisions. This reflected expectations of a relatively resilient global and domestic growth environment, despite lingering downside risks that could slightly moderate economic growth in 2026 compared to 2025. Meanwhile, after a period of weakness, inflation could trend higher but remain contained.56
Capital inflows: Singapore’s FDI net inflow rose to 58.6 billion Singapore dollars (US $46.1 billion) in the fourth quarter, up from 42.2 billion Singapore dollars in the previous quarter.57 This strong performance is further reflected in the latest annual review by the Economic Development Board, which reported a 5.3 percent increase in commitments to fixed asset investments in 2025. China, Europe, Japan, and the United States collectively accounted for three-quarters of these investments. From a sectoral perspective, electronics and biomedical manufacturing attracted the largest shares, contributing a combined 63.8 percent of total investments.58
Thailand
Thailand’s economy rebounded in the fourth quarter, growing by 2.5 percent year on year, up from 1.2 percent in the previous quarter. The manufacturing sector recovered, driven by strong demand for E&E products, which helped offset the impact of slower export growth (Exhibit 7). Domestic consumption strengthened, while investments saw a robust rebound. The central bank, the Bank of Thailand, continued to support growth, having adjusted interest rates to its lowest levels since September 2022.
The strong fourth-quarter performance enabled the economy to expand by 2.4 percent in 2025, although this was slower than the 2.9 percent growth in 2024.
Macroeconomic outlook
GDP: Thailand’s economy grew by 2.5 percent year on year in the fourth quarter, increasing from the 1.2 percent growth recorded in the third quarter. All sectors posted growth in the fourth quarter, marking a significant improvement compared to the third quarter, which saw a mixed performance across sectors. Among key sectors, wholesale trade recorded the fastest growth at 6.8 percent. In contrast, the accommodation and food services sector grew at a slower pace, reflecting a deceleration in tourism activity. The manufacturing and construction sectors rebounded from contractions in the previous quarter, supported by robust external demand for E&E products and increased public and private construction activity, respectively.59
Private consumption: Private consumption grew by 3.3 percent in the fourth quarter, up from 2.5 percent in the previous quarter. All expenditure categories experienced growth. This included the automotive segment in which there were heightened purchasing activities as motorists rushed on purchases before the conclusion of the government’s electric-vehicle subsidies program. While the continued improvement in consumption growth lifted overall consumption to 2.7 percent in 2025, it remained below the 4.4 percent growth achieved in 2024.60
Trade: Exports grew by 9.4 percent in the fourth quarter, moderating from 11.5 percent in the third quarter and 15.0 percent in the second quarter. E&E exports stood out as a major driver, recording strong double-digit growth during the fourth quarter. In contrast, exports of petroleum and chemical products contracted. For the full year 2025, exports expanded by 12.7 percent, a significant acceleration from the 5.9 percent growth recorded in 2024. Imports also performed well in the fourth quarter, although growth moderated to 12.2 percent from 16.8 percent in the third quarter.61
Industrial activity: The manufacturing sector rebounded in the fourth quarter, reversing its decline from the previous quarter, as stronger external demand, robust domestic consumption, and increased investments supported growth. The sector expanded by 0.3 percent in the fourth quarter, a notable recovery from the 1.4 percent contraction in the third quarter. For the full year 2025, manufacturing demonstrated resilience, achieving 0.4 percent growth overall, compared to a 0.3 percent contraction in 2024.62 The PMI remained firmly in expansionary territory throughout the fourth quarter, climbing to 57.4 in December 2025, the highest level since May 2023. Production grew at its fastest pace in over two-and-a-half years, while strong readings for new orders and future output indicate that the sector’s growth momentum could continue into early 2026.63
Labor: The labor market continued to tighten, with the unemployment rate declining to 0.71 percent in the fourth quarter, down from 0.76 percent in the third quarter.64 While that bodes well for Thailand, structural challenges remain within the labor market, including skills mismatches, sectoral imbalances, and youth unemployment, which reflect an urgent need for skills upgrading and learning, especially to adapt to shifts such as AI and automation.65
Inflation: Headline inflation remained negative for three consecutive quarters, edging up slightly in the fourth quarter to –0.5 percent, from –0.7 percent in the third quarter. This uptick was primarily driven by higher fresh food prices due to supply disruptions caused by flooding.66 For 2025, Thailand’s inflation stood at –0.14 percent, marking the first annual decline in five years. The drop was attributed to lower energy prices, government cost-of-living relief measures, and moderated prices of vegetables and fruits.67
Financial markets
Currency: The Thai baht appreciated by 2.8 percent against the US dollar in the fourth quarter, extending its strong performance against the greenback throughout 2025, after remaining relatively rangebound in the third quarter. By the fourth quarter, the baht reached its strongest level in four years against the US dollar. This sharp appreciation has raised concerns about the currency’s sustainability, with analysts cautioning that its strength may exceed what Thailand’s economic fundamentals can support, potentially undermining the country’s economic competitiveness.68
Policy rate: The Bank of Thailand maintained its policy rate in October 2025 before implementing two consecutive rate cuts of 25 basis points each in December 2025 and February 2026. These reductions brought Thailand’s policy rate down to 1 percent, its lowest level since September 2022. The Bank of Thailand’s priority remains supporting the economy, which is expected to operate below potential in 2026 and 2027, with uneven performance across sectors. At the same time, downside risks to inflation are increasing, driven by declining energy prices, government cost-of-living support, and limited demand-side pressures.69
Capital inflows: Thailand’s FDI rebounded strongly in the fourth quarter, reaching 374.6 billion baht (US $12.0 billion), up from 247.7 billion baht in the third quarter. This brought total FDI for 2025 to 1,359.9 billion baht, marking a 66 percent increase compared to 2024. The digital and E&E sectors emerged as key beneficiaries of investments. Singapore was Thailand’s top FDI contributor, followed by China and Hong Kong.70
Vietnam
Vietnam’s economy accelerated in the fourth quarter, achieving an 8.46 percent growth rate, the highest for the fourth quarter since 2011. Supply-side growth was broad-based, with strong outputs in industry, construction, and services. On the demand side, exports performed well, but consumption saw a slight decline despite stable fundamentals (Exhibit 8). Investments remained firm.
The robust fourth-quarter performance lifted Vietnam’s GDP growth for 2025 to 8.02 percent, the second-highest annual growth rate since 2011. This growth was driven by strong performances in manufacturing, tourism, exports, consumption, and investments, underscoring the country’s resilience and positioning it as one of Asia’s standout economic performers in 2025, despite challenging trade tensions and tariff actions. Looking ahead, Vietnam aims to build on this solid trajectory, with the government setting a growth target of at least 10 percent per year for the period 2026 to 2030.71
Macroeconomic outlook
GDP: Vietnam’s growth accelerated for the third consecutive quarter, with GDP expanding by 8.46 percent year on year, up from 8.25 percent and 8.16 percent in the previous two quarters, respectively. Fourth-quarter growth was broad-based, driven by strong performances in the industry, construction, and services sectors. This solid growth enabled Vietnam’s economy to achieve an 8.02 percent expansion in 2025, with trade and tourism as notable bright spots.72 Despite a challenging external environment, trade turnover increased by 18.2 percent, reaching a new record, while the tourism sector recorded the highest ever international arrivals. Foreign FDI remained a key growth driver, with disbursed FDI growing by 9 percent to a record high.73
Private consumption: Final consumption growth remained robust in the fourth quarter, although it moderated after accelerating over the previous two quarters. Final consumption, driven primarily by household spending, grew at a slower pace of 7.15 percent in the fourth quarter, down from 8.07 percent in the third quarter.74 This moderation occurred despite strong support from stable labor market conditions and contained inflation.
Trade: Vietnam’s exports performance held up and continued to withstand the effects of trade tensions and tariffs. In the fourth quarter, exports grew to 20.0 percent, strengthening from the 18.4 percent growth recorded in the previous quarter. Processed and manufactured goods accounted for 85 percent of exports, with key segments such as electronics, machinery, textiles, footwear, and wood products increasing in shipments. In 2025, exports grew by 17 percent year on year, highlighting strong resilience in export performance.75
Industrial activity: Industrial momentum further strengthened, with the Index of Industrial Production (IIP) rising by 9.9 percent for the full year 2025, higher than 9.1 percent growth recorded in the first nine months of 2025. The manufacturing and processing segment saw the fastest growth, growing 10.5 percent over the year.76 The PMI remained firmly in expansionary territory, rising to 53.0 at the end of the fourth quarter from 50.4 in the third. It peaked at 54.5 in October 2025, its highest level since July 2024. This reflects a strong turnaround in manufacturing prospects, driven by robust improvements in output and new orders, following earlier concerns over tariffs in the first half of 2025. With business confidence reaching a 21-month high, these gains signal a positive outlook for manufacturing in 2026.77
Labor: The labor market remained stable in the fourth quarter, even as the unemployment rate edged up slightly to 2.22 percent from 2.21 percent in the third quarter. For the full year 2025, the unemployment rate improved marginally by 0.02 percentage points compared to 2024, settling at 2.22 percent. Wages continued to grow in the fourth quarter, increasing 8.9 percent from 2024 for the full year 2025.78
Prices: Inflation inched slightly to 3.44 percent in the fourth quarter, from 3.27 percent in the third quarter. Except for the food and communications expenditure categories, which saw price declines in the fourth quarter, all other categories experienced price increases, with medicine and healthcare services seeing the sharpest rise of over 10 percent. The fourth-quarter inflation rate brought Vietnam’s inflation for 2025 to 3.31 percent, below the National Assembly’s target range of 4.0 to 5.0 percent for 2025.79
Financial markets
Currency: The Vietnamese dong remained rangebound throughout the fourth quarter, ending the period nearly unchanged from the start of the quarter. However, over the course of 2025, the dong depreciated by 3.5 percent against the US dollar, pressured by persistent external economic risks that weighed on the currency due to Vietnam’s heavy reliance on export-driven growth.80
Policy rate: The central bank (the State Bank of Vietnam), maintained its policy rate in the fourth quarter, upholding its monetary policy stance and leaving rates unchanged since June 2023.81
Capital inflows: Foreign investment inflows into Vietnam remained resilient in 2025, inching up by 0.5 percent year on year to roughly 1.0 trillion dong (US $38.4 billion). Meanwhile, disbursed FDI is estimated to be 7.2 trillion dong, the highest recorded in the past five years, representing a year-on-year increase of 9 percent. The manufacturing and processing sector attracted the largest share of new FDI, which continues to underscore Vietnam’s strong positioning as a leading manufacturing hub in the region.82
