Asia-Pacific: Key themes to watch in 2025

Here is how we see our key themes for 2025 shaping the Asia-Pacific (APAC) region’s operational and investment environment.

Economic angst

Real GDP growth in the Asia-Pacific region is likely to moderate in 2025 while still outperforming global expansion. Growth constraints include the probable economic slowdown in mainland China, curtailment of global trade, renewed pressure on local currencies, and slower monetary policy easing.

Anticipated US policy shifts affecting trade, taxation and immigration increase the risk of a revival of inflation and a less accommodative monetary policy in the US. Higher US reference yields and a stronger US dollar would imply weakening of most Asian currencies, particularly those from economies more affected by higher tariffs, including the Vietnamese dong and South Korean won, increasing the cost of imported goods and thus local inflation.

The downside risk to the region’s growth is likely limited by further redirection of trade and foreign direct investment (FDI) flows in response to new tariffs and reshoring activity, a sustained AI-led technology demand, and improving domestic consumption and investment.

Domestic discontent

In Asia-Pacific countries/territories where elections were held in 2024, political stability and policy outlooks will need to adjust to new coalition arrangements and divided policymaking objectives. Most of the elections across Asia-Pacific held in 2024 resulted in leadership changes, incumbent party losses or new coalition arrangements.

In Japan, the new minority government will be dependent on opposition parties to pass legislation, especially for fiscal policy and energy policy, and on the national security agenda. Changes in Japan’s premiership and parliamentary composition remain very likely in 2025 following upper house elections scheduled for July.

In Pakistan, an expanding profile of security risks — including an increasing frequency of terrorist attacks in multiple provinces and sporadic but intense anti-government protests — will very likely test the stability of the broad governing coalition.

Major political reordering in 2025 remains most likely in Bangladesh, where the interim government installed in 2024 will almost certainly face domestic pressure in the form of large protests to hold elections by early 2025.

In Australia’s federal election, due for September 2025, domestic opinion polls suggest that high inflation and high cost-of-living concerns will likely influence voter choices.

Political instability will remain a risk in countries not holding elections in 2025: In Nepal, fluid coalitions triggered a government change in July 2024; and in Thailand, a new prime minister was appointed in August 2024.

Elusive alliances

Asia-Pacific economies will likely seek to deepen their economic and diplomatic engagement through expanding their intra-region trade and investment through groups such as the 15-country Regional Comprehensive Economic Partnership to partially offset constricted access to the US market. Non-US allies such as Indonesia, Malaysia and Vietnam will likely seek to enhance their diplomatic engagements with emerging-market groupings such as seeking membership in BRICS.

The new US administration is likely to adopt a more transactional approach to managing multilateral security cooperation. Japan will likely seek to strengthen national autonomy in security affairs, and South Korea will likely seek transfer of wartime operational control of South Korean military forces. US allies will likely increase their contributions to the cost of US force presence or buy more US-made defense equipment to maintain US commitments.

In the Philippines, where midterm congressional elections will take place in May 2025, a diversified political campaign by opposing political groupings will increase the likelihood of a fragmented Congress. The balance of power between the legislature and executive will also likely influence the Philippines’ foreign policy, especially vis-à-vis the US and mainland China.

The mainland Chinese government will likely seek to temporarily stabilize relations with governments that dispute its territorial claims, so that it can focus on managing US-mainland China relations and trade disputes under a second Trump administration. 

Trade troubles

Regional economies with large or rapidly rising trade surpluses with the US — notably mainland China but including Vietnam, South Korea and Thailand — are more exposed to US tariff actions. Mainland China’s economic slowdown is also likely to dampen intra-regional trade, FDI and tourism.

US-mainland China strategic competition will likely accelerate the realignment of global supply chains and trade flows. Southeast and South Asian economies, including Vietnam and India, are poised to attract the lion’s share of investment inflows as reshoring destinations for the US and mainland China. However, the redirection of mainland Chinese exports and FDI to these emerging markets would risk triggering a second wave of tariffs directed at these markets or prompt them to adopt trade-distortive measures to safeguard local industries. This would offset some of the benefits of reshoring.

Merchandise exporters such as Vietnam and Malaysia would also likely attempt to build alternative supply chains for goods destined for the US and those aimed at other markets. Frontloading export orders in early 2025 are likely to create tailwinds at the cost of future demand, likely reversing later.

Year-over-year increases in defense spending for most major Asia-Pacific economies will be accompanied by region-wide efforts to strengthen supply chain security, aiming to reduce exposure to disruptions from military conflict or trade disputes between the US and mainland China.

Click here for our global report on 2025 themes