Solid domestic demand and strong global appetite for semiconductors driven by the artificial intelligence boom are supporting growth, but tariffs and trade uncertainty will act as a headwind. Regional growth is expected to decline further to 4.7 percent next year, according to Asian Development Outlook (ADO) April 2025, released on Wednesday.
Inflation is projected to moderate to 2.3 percent this year and 2.2 percent next year as global food and energy prices continue to decline.
The growth forecasts were finalised prior to the April 2 announcement of new tariffs by the US administration, so the baseline projections only reflect tariffs that were in place previously. However, ADO April 2025 does feature an analysis of how higher tariffs may affect growth in Asia and the Pacific.
The report notes that while economies in the region are resilient, faster and larger-than-expected changes in US trade and economic policies pose risks to the outlook. Along with higher US tariffs, increased policy uncertainty and retaliatory measures could slow trade, investment, and growth.
“Economies in developing Asia and the Pacific are supported by strong fundamentals, which are underpinning their resilience in this challenging global environment,” said ADB Chief Economist Albert Park. “Rising tariffs, uncertainties about US policy, and the possibility of escalating geopolitical tensions are significant challenges to the outlook. Asian economies should retain their commitment to open trade and investment, which have supported the region’s growth and resilience.”
Further deterioration in the property market of the People’s Republic of China (PRC), the region’s largest economy, could also drag on growth. ADB projects a 4.7 percent expansion for the PRC this year, and 4.3 percent next year, compared with 5.0 percent last year.
Stronger growth in South Asia and Southeast Asia, driven by domestic demand, and a continued recovery in tourism elsewhere in the region will partly offset the slowdown in the PRC. India, South Asia’s largest economy, is projected to grow by 6.7 perent this year and 6.8 percent next year. Economies in Southeast Asia are forecast to grow by 4.7 percent this year and next year.
Weak external demand is expected to weigh on economic activity in Caucasus and Central Asia, with growth projected to slow from 5.7 percent last year to 5.4 percent this year and 5.0 percent next year. For the Pacific, tourism will continue to support growth but at a slower pace, which is forecast at 3.9 percent this year and 3.6 percent next year, compared to 4.2 percent last year.
