The global economy in 2025 is navigating through a complex web of challenges and opportunities. Shifts in geopolitical dynamics, fluctuating interest rates and evolving trade patterns are redefining companies' investment and business strategies worldwide. In Asia, the interplay of domestic demand, structural transitions and policy reforms is creating a unique economic environment that businesses must adapt to for sustained growth.
Key takeaways
- The economic outlook for Asia in 2025 indicates uncertainty and opportunities at the same time. China and India projected GDP Declines from 4.8% to 4.5% and from 7% to 6.5% due to shrinking margins, less consumer spending and trade frictions.
- While foreign direct liabilities dropped to 33 billion USD, utilised FDI showed a more moderate decrease from 189.1 billion USD in 2022 to 163.3 billion USD. This reflects a business strategy among existing companies to leverage on established growth.
Economical recap
The 2025 economic forecast projects moderate Real GDP growth influenced by factors including fluctuating US interest rates, inflation and declining consumer purchasing power. Additionally, considerations such as resource and energy development, non-tariff related restrictions and the price fluctuation of certain commodities and raw material prices will shape the landscape.
The economic outlook for Asia in 2025 is characterised by uncertainty regarding GDP growth rates as in the previous decade and financial market developments. Due to the ongoing structural transition in high-productivity industries and tradeable services, many companies have been compelled to implement cost measurement initiatives and restructure operations by streamlining their workforces or closing production lines.
Domestic demand remains strong, especially for local products, though GDP growth in China and India is expected to decrease in 2025 from 4.8% to 4.5% and from 7% to 6.5%, respectively. Declining consumer spending and labour market volatility are driving companies to reduce prices, squeezing profit margins. This reflects broader trends, including a lower consumer price index and challenges in industries such as mechanical engineering and automotive manufacturing. Companies must invest strategically in Asia, leveraging digital transformation and adopting Asia-centred strategies to stay competitive.
Foreign direct investments in China
In 2023, China's inbound direct investment liabilities decreased to USD 33 billion from USD 180.2 billion in 2022.
While foreign direct investment (FDI) declined, the drop has slowed, with utilised FDI at USD 163.3 billion in 2023, compared to USD 189.1 billion in 2022.
Despite the decrease, there has been a notable increase in new enterprise registrations, reaching 53,766 in 2023, up from 38,497 in 2022. This growth indicates a contrast with the drop in direct investment liabilities due to geopolitical uncertainty and rising interest rates.
In addition to China, other Asian countries are emerging as potential investment destinations. This shift is due to a comparison of their relatively lower market openness compared to other advanced countries, although market openness has increased across all Asian nations.
Comparing the number of newly registered enterprises with foreign direct liabilities, the data indicates a stronger increase in new enterprises. This suggests that not all newly established businesses remain or achieve sustainable growth in this period. Furthermore, existing enterprises may prefer to leverage the already established growth rather than pursue new venture investments.
Overall, China remains a major destination for FDI, although it seems that the new international players face more challenges in maintaining market presence compared to previous years. On the other hand, established players focus on maximising growth from existing investments.
Trade balance – export /import
By 2026, China is expected to dominate global chemical product production significantly. However, the real estate sector still faces a substantial decline, leading to lower capital costs and reduced return on investments.
ASEAN countries such as Vietnam and Thailand are capitalising on export opportunities arising from US-imposed tariffs, boosting their GDP growth rates, as illustrated in Graph 1.
China, Asia's largest economy, experienced a decline beginning in 2022 despite maintaining a strong positive trend from 2013 to 2023. In 2023, China recorded a merchandise surplus of approximately USD 823 billion, just USD billion less than in 2022. With its economy heavily dependent on exports, maintaining a strong trade balance where exports exceed imports is crucial for its growth.
Additionally, several ASEAN countries have become more open and integrated into the global value chain, attracting higher FDI than China. This shift is driven by diversification strategies and the need for restructuring, as rising production standards have led to increased production and labour costs. However, while opportunities are emerging from some ASEAN countries due to trade tensions between the US and China, potential trade restrictions in light of the 2024 elections could lead to increased risk and uncertainty in global trade dynamics.
Trade factors
Global trade dynamics continue to be shaped by labour market challenges, shifting foreign investments, fluctuating consumer confidence and geopolitical uncertainties. Below is an overview of the key elements affecting trade in the region:
Labour
- A notable increase in the labour shortage of qualified engineers and a highly educated workforce results in higher labour costs for these roles.
- On the other hand, wage pressure generally remains a concern, as particularly in larger Asian economies, services and prices are more directly affected by market shifts, resulting in restructuring and cost-saving measures.
- In some advanced Asian economies, wage inflation has been an issue in 2023 to further reach disinflation.
- Moreover, according to 2024 DUSA Salary Survey Report conducted by Acclime, macroeconomic challenges have compounded the difficulties organisations face in hiring top talent amidst escalating cost pressures. A misalignment between new hire expectations and offered compensation packages further exacerbates the issue. Rising labour costs add additional strain, requiring companies to balance competitive salaries with tight budget constraints. (*If you would like to view the full report, please feel free to reach out to us).
Foreign direct investment
- A notable shift in FDI is related to economic uncertainty and geopolitical tensions.
- Asian countries which have more effectively integrated into the global supply chain result in stronger, less restrictive FDI policies and are better positioned in terms of adaptability of trade diversions.
- Trade restrictions might be taken into place to enhance supply chain resilience but also to protect local economy growth over foreign competition, especially in the high-tech industry, which also results in a more volatile financial market and a sudden shift in monetary policies as exchange rate amendments or as mentioned before, foreign investment disruptions.
Consumer confidence
- Purchasing and investment decisions are strongly rooted in the current local economic situation.
- In 2024, consumer confidence in China slightly decreased from 87.2 in September 2023 to 85.7 in September 2024, indicating a preference to save.
Real estate factor
- The persistent property downturn in 2023 – 2024, which correlated with overall consumer confidence, highly affected private consumption, private investment decisions and local government finances.
Geopolitical tensions
- US elections are leaving many industries uncertain due to unknown enhanced trade restrictions which might occur in 2025.
- Trade frictions are contributing to slower growth in 2024.
- The increasingly protectionist trade policies of the US continue to hinder certain production lines in China, forcing companies to explore alternative production locations such as Vietnam, Malaysia, India or even Mexico, which benefits from proximity to the US export market.
- Although other Asian countries may offer the chance to realise lower labour costs and fewer export restrictions, China will always remain competitive in terms of raw material prices, process know-how and volume capacity.
Conclusion
The economic and trade landscape in 2025 presents a mix of challenges and opportunities for businesses operating in Asia. With fluctuating GDP growth, evolving trade policies and shifting FDI patterns, companies must navigate an environment shaped by geopolitical tensions, labour market constraints and changing consumer behaviours.
While uncertainties remain, Asia continues to demonstrate resilience through robust domestic demand, policy reforms and advancements in digital transformation. To thrive in this dynamic environment, businesses need to adopt strategic, Asia-centred approaches, leveraging emerging opportunities in diversified markets and adapting to structural transitions. By doing so, they can position themselves for sustainable growth in a rapidly evolving global economy.
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