GLOBAL concerns about a potential recession have grown significantly following recent revisions to GDP forecasts for key economies such as the United States, Europe, and China, along with the announcement of new reciprocal tariffs by President Donald Trump.
China, in particular, is expected to be hit harder this year compared to 2018, with its economy growing at its slowest rate since 1990.
In March, Beijing set its GDP growth target for the year at approximately 5.0%, but global banks, including Citigroup Inc., have warned that tariffs introduced under Trump’s second term—amounting to 54% on Chinese goods—could lower China’s GDP growth by 2.4 percentage points by 2025.
For the US, Goldman Sachs forecasts that external trade restrictions could shave off between 0.1% to 0.3% of the US GDP by 2025, while the European Central Bank has downgraded its GDP growth projections for Europe by 0.2 percentage points for 2025 and 2026, although it maintained its forecast for 2027.
This downward revision is attributed to weaker export and investment performance, reflecting higher uncertainty and the possibility of extended competitive challenges in the global market.
According to US Census Bureau data, China and the European Union together contribute roughly a quarter of all US imports in 2024, with Mexico being another major supplier.
SPI Asset Management’s Stephen Innes highlighted that one of the most unpredictable factors contributing to the current uncertainty is the combination of inflation trends, consumer confidence shocks, and price recalibrations.
“This could easily tip into an economic downturn, and no region will be spared,” Innes stated.
“However, should the situation worsen, the US Federal Reserve still has liquid reserves, and they may be forced to cut interest rates further, which would allow Bank Negara Malaysia (BNM) to do the same without triggering excessive exchange rate volatility. BNM remains one of the best central banks in the region, quick to adapt, and this flexibility gives it a distinct advantage.”
Innes also suggested that both Europe and China are unlikely to remain passive and are expected to announce their own stimulus measures to combat the slowdown.
A key positive development for Asia, he noted, is China’s apparent intention to avoid a sharp depreciation of the yuan, which would contribute to regional foreign exchange stability. This stance underscores China’s desire to maintain regional stability and avoid igniting another round of competitive devaluations.
Turning to Malaysia’s currency, Innes does not expect the ringgit to suffer significantly, supported by Malaysia's robust macroeconomic fundamentals, disciplined central banking, and ongoing trade negotiations which could lead to tariff reductions. “With expectations of a US rate cut, the ringgit should receive some support,” he added.
Trade War Escalates: China Responds to US Tariffs
As the trade war enters its second phase, China appears to have begun retaliating by imposing a 34% tariff on all US imports, effective from April 9. Innes noted, "The message from China is clear: the response will be broad, swift, and relentless."
He warned that the market’s reaction to Trump’s tariff actions is causing volatility, with traders increasingly concerned about the widespread effects and the unpredictable nature of the ongoing trade conflict.
ASEAN-6 Growth Forecast Revised Down to 4.2% for 2025
Six out of the ten ASEAN countries targeted by Trump’s tariffs face higher-than-expected tariffs, ranging from 32% to 49%, which significantly exceeds the 20% levied on the European Union.
While no ASEAN nation has yet signalled an intention to retaliate with tariffs of their own, the economic impact is being closely monitored.
Trump’s 24% tariff on Malaysia is lower than many other ASEAN countries, potentially incentivising some relocation of business to Malaysia if the situation persists. However, Innes cautioned that the higher tariffs would likely depress demand overall, despite some potential relocation benefits.
Maybank Securities has revised down its growth forecast for the ASEAN-6—comprising the six largest Southeast Asian economies—to 4.2% for 2025, down from a previous estimate of 4.7%. Similarly, the growth forecast for 2026 has been adjusted to 4.2% from 4.7%.
The lowered forecasts reflect expectations of reduced export growth and investment, particularly due to the reciprocal tariffs Trump has imposed on around 180 countries, including ASEAN nations. Vietnam (46%), Thailand (36%), Indonesia (32%), and Malaysia (24%) are particularly affected by the new tariffs, while the Philippines (17%) and Singapore (10%) face lower tariffs.
Maybank Securities also downgraded its growth projections for the US and China, with the US GDP now expected to grow by just 1.7%, down from 2.0%, and China’s expected growth revised to 4.2%, down from 4.5%.
Lower Inflation Opens Door for Rate Cuts
In its revised forecast, Maybank Securities lowered its inflation projections for ASEAN-6 countries to 2.1% in 2025 (from 2.4%) and 2.1% in 2026 (from 2.5%). The slower global growth and China’s excess capacity are expected to reduce price pressures in the region.
The Federal Reserve is also expected to cut interest rates by 50 basis points in 2025, as tariffs and other US measures are anticipated to weigh on growth and unemployment.
This drop in US rates and lower inflation in ASEAN will likely provide room for more central banks in the region to ease their monetary policies, including those in Indonesia (-50bps), the Philippines (-50bps), Thailand (-50bps), Vietnam (-25bps), and Singapore, all of which are expected to lower rates in 2025.
However, fiscal stimulus may be more constrained due to high public debt and deficits, except in Singapore, which has a more favourable fiscal position. – April 6, 2025
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