In some economies, international studies analyzed, such as Australia and Japan, what spending growth there was in 2024 was almost entirely due to inflation. In 2025, battered consumers will be more likely to open their wallets as inflation continues to come down in response to the recent interest rate hike cycle. The rebound will only be moderate, however: The high level of prices will still register strongly in consumer psyches, even if the rate of inflation drops. Inflation will notably ease in the Philippines and India, as long as the good harvests that are expected materialize. This will have the added benefit of increasing rural incomes. In other economies, tight labour markets in places such as Hong Kong and Japan have led to persistent wage increases, and this feeling of security should entice people to spend more in the year ahead. In the case of Hong Kong, however, a portion of the increased activity will continue to be spent across the border in Shenzhen, mirroring the increasing proclivity of people in Asia Pacific to look abroad to take advantage of price differentials. This works to the advantage of economies like Japan and Malaysia. The largest risk for consumer spending comes in the form of housing, where highly indebted households in markets such as Australia, Mainland China, Malaysia and South Korea tend to cut back spending in response to higher interest rates or falling house prices. On the other hand, international analysts also analyzed that for years, U.S. and Chinese firms have led the creation of new supply chains to reduce risk and take advantage of changing patterns of cost and technological capabilities, as well as developments in bilateral relations. For instance, over the last decade, the U.S. trade deficit has grown by 54 percent but the size of the deficit with Mainland China has shrunk. India and ASEAN’s trade deficit has risen by a much larger than average amount. These new supply chains will likely face a changing regulatory environment in 2025. Underlying demand for Asia’s exports will continue to be heavily influenced by the AI-driven boom in semiconductors and related parts of the electronics industry. While the AI boom will likely moderate somewhat in 2025, regional exporters should still see good demand for their products. It is also analyzed in the studies that as the U.S. Federal Reserve embarked on its rate-hiking cycle in recent years, most Asia Pacific currencies have depreciated, particularly consequentially in the large economies of Japan, Mainland China and South Korea. Both emerging patterns of cost differentials and regulation are driving investment, such as in production facilities in Japan, and sourcing of components cross border, such as China’s surging exports to Southeast Asia. As the U.S. Fed continues to cut interest rates, any central bank holding rates constant or cutting slowly, such as in Malaysia or Thailand, should see currency appreciation. This will reduce export competitiveness even as it increases the spending power of local consumers. So how will the region’s largest economies do in 2025? Asia Pacific will remain the world’s fastest -growing region, even as Mainland China’s economy slows against a mix of structural headwinds, such as a decline in the size of the workforce and weak confidence amid a property slump. Mainland China will be one of the few governments in the region embarking on fiscal stimulus rather than consolidation. This boost to spending could help to stave off deflation and manage a highly indebted property sector, making it countercyclical to much of the rest of the region. Urbanisation remains the biggest driver of growth for Asia Pacific’s emerging economies and, combined with sufficient improvements to the business environment, will propel India, Vietnam and the Philippines to become standout markets for growth. Significant numbers of new consumers are moving into the middle class, with implications for retail and travel, in particular. Demographic change is rapidly occurring, and economies like Thailand and Vietnam are going to face challenges with healthcare, pensions and employment due to ageing populations at lower levels of gross domestic product per capita than Mainland China did, and it in turn is facing them earlier than Japan or South Korea did. Technological change remains a bright spot, with much of the global cutting-edge innovation, from semiconductors to EVs, taking place in regional economies.
| Real GDP Forecast | ||||||||
|---|---|---|---|---|---|---|---|---|
| (% year over year) | 2023 | 2024 | 2025 | 2026 | 2027 | Change from prior forecast | ||
| 2024 | 2025 | 2026 | ||||||
| Australia | 2.0 | 1.1 | 2.1 | 2.2 | 2.4 | 0.0 | -0.1 | -0.2 |
| China | 5.2 | 4.8 | 4.1 | 3.8 | 4.3 | 0.2 | -0.2 | -0.7 |
| Hong Kong | 3.3 | 2.7 | 2.3 | 2.3 | 2.3 | -0.6 | -0.4 | -0.2 |
| India | 8.2 | 6.8 | 6.7 | 6.8 | 7.0 | 0.0 | -0.2 | -0.2 |
| Indonesia | 5.0 | 5.0 | 4.9 | 4.9 | 4.9 | 0.0 | -0.1 | 0.0 |
| Japan | 1.7 | -0.3 | 1.3 | 1.0 | 1.0 | -0.3 | 0.0 | 0.1 |
| Malaysia | 3.5 | 5.5 | 4.9 | 4.5 | 4.5 | 0.4 | 0.1 | 0.0 |
| New Zealand | 0.9 | 0.8 | 2.2 | 2.4 | 2.4 | -0.2 | -0.1 | 0.0 |
| Philippines | 5.5 | 5.5 | 6.0 | 6.2 | 6.5 | -0.2 | -0.2 | -0.2 |
| Singapore | 1.1 | 3.4 | 2.5 | 2.4 | 2.4 | 1.0 | 0.0 | -0.2 |
| South Korea | 1.4 | 2.2 | 2.0 | 2.0 | 2.0 | -0.1 | 0.0 | 0.0 |
| Taiwan | 1.3 | 4.4 | 2.4 | 2.1 | 2.4 | 0.2 | 0.3 | -0.3 |
| Thailand | 1.9 | 2.8 | 3.1 | 3.0 | 3.1 | 0.0 | 0.0 | 0.0 |
| Vietnam | 5.0 | 6.7 | 6.6 | 6.7 | 6.7 | 0.5 | -0.2 | 0.0 |
| Asia Pacific | 4.9 | 4.5 | 4.2 | 4.1 | 4.4 | 0.1 | -0.2 | -0.3 |
| Note: For India, 2023 = FY 2023 / 24, 2024 = FY 2024 / 25, 2025 = FY 2025 / 26, 2026 = FY 2026 / 27, 2027 = FY 2027 / 28. Source: S&P Global Ratings Economics. | ||||||||
China-Sri Lanka economic relations in a new era
Sri Lankan President Anura Kumara Dissanayake’s visit to Beijing from January 14 to 17 is his second foreign trip following a mission to India last year. While his trip to India reflected its status as Sri Lanka’s major economic partner, his trip to China also signifies the country’s importance in Sri Lanka’s economic recovery and growth. Dealing with debt will be high on the agenda – but it is investment rather than loans from China that Sri Lanka will need to prioritize.
Dissanayake’s election in September 2024 was an important political landmark that demonstrated the huge public backlash against establishment politics following the forced resignation of then-President Gotabaya Rajapaksa amid island-wide protests. Dissanayake and his National People’s Party (NPP) represent a new alternative to the political parties that had governed Sri Lanka over the last seven decades. Through the election victory, and its subsequent win in the parliamentary polls, the NPP was given a mandate to address bribery and corruption, punish those involved in the devastating 2022 Easter attack, reduce tax burdens, and provide more relief to the poor.
In 2025 experts urge reform as Thailand’s growth slows to 2.7pc
Thailand’s economy is at a pivotal moment as it contends with sluggish growth and structural issues that are expected to cap GDP growth at 2.7 percent in 2025. Despite strengthening tourism and agriculture sectors, challenges like a vast informal economy, declining exports and global headwinds remain threats to progress.
Malaysia, Singapore deepen ties with latest economic zone
Malaysia and Singapore last week inked a deal to establish the Johor-Singapore Special Economic Zone (JS-SEZ) in Malaysia’s southernmost Johor state, just north of Singapore.
The initiative is designed to attract global investment and ease the cross-border flow of goods and people between the two nations, while leveraging the strengths of both to deepen economic ties.
Johor, Malaysia’s second most populous state, plays a vital role in the country’s economy, with key sectors including manufacturing and tourism.
Proposals for the JS-SEZ include a passport-free immigration clearance system, cooperation on renewable energy, and simplified business approvals.
Nepal business news in a snap
Economic Digest offers a concise yet comprehensive overview of significant business happenings in Nepal, presented in easily digestible summaries.
Foreign investment commitments in Nepal have declined in the first six months of the current fiscal year compared to the same period last year.
According to the Department of Industry, the commitment decreased by Rs 1.55 billion. However, the number of industries registering commitments has increased.
For business growth, Japan’s ageing issue creates barriers
Two-thirds of Japanese companies report business challenges due to labour shortages, as Japan’s population continues to shrink and age, according to a survey conducted by Nikkei Research.
The issue is particularly evident among non-manufacturers and small firms, raising concerns about economic growth.
The survey found that 66 percent of companies said labour shortages were affecting their operations, while 32 percent said the impact was minor. Nearly a third of respondents noted that the issue is worsening, with only 4 percent reporting improvements.
To address the issue, 69 percent of companies are increasing recruitment efforts for new graduates, and 59 percent are extending retirement ages or rehiring retired employees. While the official retirement age is 60 for most firms, many allow employees to continue working until 65.
For 2025, 69 percent of companies identified capital investments as a priority, and 63 percent highlighted wage increases and other human resource measures.
| Policy rate (year end) | |||||
|---|---|---|---|---|---|
| (%) | 2023 | 2024 | 2025 | 2026 | 2027 |
| Australia | 4.35 | 4.35 | 3.85 | 3.35 | 3.35 |
| China | 2.50 | 2.00 | 1.60 | 1.30 | 1.30 |
| India | 6.50 | 6.25 | 5.50 | 5.25 | 5.25 |
| Indonesia | 6.00 | 6.00 | 5.25 | 4.75 | 4.75 |
| Japan | -0.10 | 0.25 | 0.75 | 1.00 | 1.25 |
| Malaysia | 3.00 | 3.00 | 2.75 | 2.75 | 2.75 |
| New Zealand | 5.50 | 4.50 | 3.25 | 3.00 | 3.00 |
| Philippines | 6.50 | 5.75 | 4.75 | 4.00 | 4.00 |
| South Korea | 3.50 | 3.25 | 2.50 | 2.50 | 2.50 |
| Taiwan | 1.88 | 2.00 | 1.63 | 1.38 | 1.38 |
| Thailand | 2.50 | 2.25 | 1.75 | 1.75 | 1.75 |