Trump tariffs bite into Asia's growth as ADB flags economic chill

Is developing Asian countriesgrowth engine is sputtering?

On Wednesday, citing escalating US tariffs, China’s fragile recovery, and rising global uncertainty, the Asian Development Bank (ADB) lowered its growth forecast for the region for both 2025 and 2026.

In its latest Asian Development Outlook which got released on Wednesday, the ADB cut its 2025 growth forecast for the region from 4.9 per cent to 4.7 per cent, and trimmed its 2026 projection from 4.7 per cent to 4.6 per cent. The bank in its report warned that domestic demand across much of Asia is expected to weaken as countries struggle with tighter financial conditions, supply chain disruptions, and the economic fallout of geopolitical tensions.

“Asia and the Pacific has weathered an increasingly challenging external environment this year,” said ADB Chief Economist Albert Park, adding, “But the economic outlook has weakened amid intensifying risks and global uncertainty,” according to Reuters. Among the most immediate threats are tariff increases announced by US President Donald Trump. A new 15 per cent tariff on Japanese imports, reduced from a threatened 25 per cent, and a 19 per cent tariff on Philippine goods are just the latest in a broader push that has reshaped global trade flows. Since April, nearly all US trading partners have faced a baseline 10 per cent tariff, with many bracing for more from August 1. This sudden wave of protectionism has forced the ADB to revise down its regional projections.

Southeast Asia worst hit

Long seen as a regional growth engine, Southeast Asia is now expected to grow by only 4.2 per cent in 2025 which is down sharply from the 4.7 per cent projected in April. For 2026, the outlook has also weakened to 4.3 per cent, signalling that this isn’t a short-term shock but part of a broader structural slowdown.

Thailand’s 2025 growth forecast has been slashed from 2.8 per cent to just 1.8 per cent, and is expected to dip further to 1.6 per cent in 2026. Similarliy, Malaysia's growth fell from 4.9 per cent to 4.3 per cent in 2025, before sliding to 4.2 per cent the following year. Singapore is forecast to slow to 1.6 per cent in 2025, and further to 1.5 per cent in 2026.

The Philippines which is now facing a new 19 per cent US tariff, is forecast to grow 5.6 per cent in 2025. Which is slightly down from earlier projections, before rising modestly to 5.8 per cent in 2026. Vietnam stands out as one of the few resilient players, with 2025 growth revised upward to 6.5 per cent, though this is still lower than its pre-COVID trajectory.

China slows, India holds steady

Like Southeast Asia, East Asia's economic outlook has also darkened. The ADB now sees growth in the subregion easing to 4.3 per cent in 2025, slightly lower than April’s 4.4 per cent. The figure for 2026 holds at 4.0 per cent. China’s GDP forecast remains at 4.7 per cent for 2025, unchanged from April, but reflects a deep cooling from the 5.4 per cent growth seen in 2023. The world’s second-largest economy is grappling with structural challenges, from a weak property market to sluggish consumer spending. Its 2026 growth is expected to remain flat at 4.3 per cent.

In contrast, South Asia, led by India, continues to outperform. While the region’s overall growth is expected to slow slightly to 5.9 per cent in 2025, India alone is projected to expand by 6.5 per cent, up from April’s 6.7 per cent but still one of the fastest rates globally. The 2026 estimate for India stands at 6.7 per cent, driven by robust consumption and services.

Asian economic growth snapshot

The latest ADB projections offer a mixed picture for developing Asia. While some economies like India and Vietnam continue to perform relatively well, much of the region faces slowing momentum, particularly Southeast Asia and China. Here’s a detailed look at the updated forecast.

The biggest downward revisions are concentrated in Southeast Asia, particularly in Thailand, where 2025 growth has been sharply downgraded to just 1.8 per cent from an earlier 2.8 per cent. The Philippines is expected to grow at 5.6 per cent, unchanged from April but still below earlier trends due to new US tariffs. Malaysia’s outlook has weakened too, now expected to grow 4.3 per cent in 2025, down from 4.9 per cent. In East Asia, China’s 2025 projection remains flat at 4.7 per cent, but there’s little hope of a rebound, with 2026 growth also stuck at 4.3 per cent. The ADB signals ongoing structural challenges in China’s real estate sector and weak domestic demand as major concerns.

On the brighter side, India continues to outperform. Even with a modest downward revision, its 2025 growth is forecast at 6.5 per cent, with 2026 expected to rise again to 6.7 per cent, driven by stable consumption and investment-led stimulus. Vietnam has also shown resilience, with the ADB revising its 2025 forecast upward to 6.5 per cent, despite global trade disruptions. The Pacific region is expected to remain subdued, growing 3.9 per cent in 2025 and slowing further to 3.5 per cent in 2026, due to its high dependence on tourism and foreign aid flows, both of which remain volatile.

Inflation pressures ease

While growth is slowing, inflation appears to be moderating. The ADB now expects Developing Asia’s inflation rate to fall to 2.0 per cent in 2025, slightly lower than the 2.3 per cent it projected in April. In South Asia, inflation is expected to ease to 4.4 per cent, with India’s inflation stabilising at 3.8 per cent in 2025 and 4.0 per cent in 2026.

Elsewhere in Southeast Asia, Indonesia’s inflation is forecast to drop to 1.5 per cent in 2025, while Thailand is expected to see inflation at just 0.5 per cent. Malaysia is projected to hold steady at 2.4 per cent, and Vietnam at 3.9 per cent. The outlier remains Myanmar, where inflation could exceed 20 per cent, largely driven by political instability, currency devaluation, and food insecurity.

Reform or retreat?

The ADB has urged countries across the region to resist inward-looking policies and instead strengthen their economic fundamentals. That includes pursuing open trade, deepening regional cooperation, and investing in sustainable growth to support jobs and long-term productivity. “Economies in the region should continue strengthening their fundamentals and promoting open trade and regional integration,” Park said.

For now, the message is clear: Asia is entering a tougher, slower era of growth. Navigating the fallout from Trump-era tariffs, a weaker China, and shifting global demand will require more than policy tweaks. It may demand a full recalibration of Asia’s growth model.

(With inputs from the agencies)