Malaysia’s economy seen on firmer footing
Malaysia’s economy is now on a firmer trajectory towards more stable growth, underpinned by challenging structural reforms such as subsidy targeting, according to analysts.
Despite operating in an uncertain global environment, stable inflation, a controlled fiscal deficit and supportive monetary policy have combined to create what analysts describe as a robust economic shield for the domestic economy.
TA Securities projects that Malaysia’s gross domestic product will expand between 4.3 percent and 4.7 percent in 2026, driven by steady private consumption, continued cash assistance and favourable monetary conditions.
The firm noted that while external uncertainty could weigh on exports, Visit Malaysia Year 2026 is expected to provide an additional boost through strong multiplier effects across services and consumer spending.
Investment momentum is also expected to remain firm, extending the gains recorded in 2025.
“Higher approved investments, strong committed inflows and deeper bilateral economic relationships continue to position Malaysia as a regional investment hub, even against a more protectionist global backdrop,” TA Securities said in a research note.
On the external front, the research house said tariff-related risks have eased following the United States’ decision to reduce reciprocal tariffs. Malaysia has secured a final tariff reduction to 19 percent, with discussions ongoing over exemptions for selected products.
Asia-Pacific: key insights
- Asia-Pacific GDP is over twice that of the Americas, 3 times that of Europe and 8 times Africa.
- The largest Asian countries by GDP size all have reasonable Data Quality Ratings (Grades A-C), and data are likely to be believable, but all Pan region GDP data includes data of varying quality, so subscribers are advised to visit individual country areas here for a more detailed perspective.
- Asia-Pacific countries accounted for 70 percent of global GDP growth over the decade to 2025, with China alone accounting for 31.2 percent. GDP per Capita is growing much faster in Asia than in other regions.
- The Asian population is greater than that of Africa, the Americas and Europe combined. Life expectancy and age dependency levels are similar to those of Europe and the Americas, and higher and lower respectively than those seen in Africa.
- Governance is counted as within the A-C bands (and therefore reasonable) in 58 percent of Asian countries, but the Asia-Pacific total includes China and other countries with the lowest E Governance rating, signifying a level of untrustworthiness that should alarm investors of all kinds.
China’s economy loses momentum
Retail sales slowed and investment contracted compared to previous years as Chinese policymakers aim to make domestic demand a top priority in 2026.
China’s economic slowdown became more entrenched in November, with retail sales recording their lowest month of year-on-year growth since 2022.
All major domestic indicators disappointed in November, underscoring the challenge facing policymakers as they seek to make household spending, rather than exports and investment, the main driver of growth from 2026 onwards.
“Boosting domestic demand in 2026 looks to be a top priority for policymakers, according to recent communications from the Politburo meeting and the Central Economic Work Conference,” said a report from ING bank.
The Chinese leadership plans to implement “special actions to boost consumption”, along with initiatives to boost household incomes.
“Retail sales growth slowed sharply to 1.3 percent year-on-year in November, down from 2.9 percent in October,” with ING attributing much of this slowdown to the fading impact of China’s trade-in policy, which encouraged households to replace older goods with new ones.
While sales initially jumped when consumers realised they could purchase newer items and bring in their old ones for a price reduction, making upgrading an appealing concept, now the policy is dragging the economy down because it failed to create lasting demand.
India: no currency hits harder by us tariffs
No currency has been hit harder by US tariffs than India’s rupee, and there may yet be more downside as investors pull out of the country until they see a trade deal struck with Washington.
The rupee is among the worst-performing currencies globally this year, sliding 6 percent against the dollar as a widening trade deficit, punitive 50 percent US tariffs and investment outflows have dragged it to a record low of 91.075 per dollar.
Measured against a basket of trading-partner currencies, the real effective exchange rate of 96 is the lowest in more than a decade, according to Citi.
That is well below a decade average of 103, and a usually reliable signal that it is overdue for a rebound.
“I think the market’s patience in general is running thin,” said Vivek Rajpal, Asia macro strategist at investment advisory firm JB Drax Honore, as months of trade talks with the US have so far yielded no deal or tariff relief.
It is a good entry point for Indian assets, he said, but first the market needs confidence that the tariffs are only temporary.
Japan’s economic security strategy depends on a deeper pivot to Central Asia?
When the United States hosted its second presidential-level C5+1 Summit with the leaders of Central Asia on November 6, it signaled a shift that has been building quietly for several years: the region is no longer a strategic afterthought. Sanctions, chokepoints and geopolitical rivalry have redrawn the global economic map, pushing countries to look for stable partners and resilient supply chains. Now, as Japan prepares to host its own C5+Japan Summit on December 19, Tokyo faces a similar inflection point and an opportunity to correct what has long been a blind spot in its foreign policy.
Japan has historically maintained cordial ties with Central Asia, but its involvement has rarely kept pace with the region’s growing strategic value. Today, however, Japan’s core economic security concerns, such as securing energy, accessing critical minerals, and diversifying transport routes, intersect directly with what Central Asia offers. The upcoming summit provides Tokyo with a chance to place these relationships on a more structured and strategic footing.
Japan’s decision to convene this summit is due to several forces, the first being its need to secure stable supplies of energy and strategic resources. Few countries are more relevant here than Kazakhstan. As the largest economy in Central Asia, Kazakhstan attracts around 80 percent of all foreign investment flowing into the region. It is Japan’s strongest economic partner among the five Central Asian states. Japan ranks among Kazakhstan’s top ten investors, with roughly $9 billion already invested, and mutual trade approached nearly $2 billion last year. Kazakhstan produces over 40 percent of the world’s uranium, making it relevant to Japan’s energy mix and long-term decarbonization strategy.
Beyond uranium, Kazakhstan possesses one of the most diverse critical mineral portfolios in the world. Out of the 32 types of raw materials used in Japan’s green technologies, 22 are extracted in Kazakhstan, including rare earth elements, lithium, tantalum, chromium, and copper. For Japan, which is implementing its own Economic Security Promotion Act and trying to reduce exposure to single-source suppliers, these resources are strategically indispensable.
A second driver of Japanese interest lies in connectivity. Japan’s economic model relies heavily on maritime routes, including those that pass through the South China Sea, the East China Sea, the Indian Ocean, and the Red Sea. Recent years have illustrated how vulnerable these arteries are. These pressures are prompting Japan to look for alternative, non-maritime transport options linking Asia and Europe.
In Sri Lanka floods will test its fragile economic recovery
The cost of recovery and reconstruction from the floods in Sri Lanka could reach $7bn, according to government officials. This is a staggeringly high amount the small island nation in South Asia cannot afford. It is roughly 7 percent of Sri Lanka’s gross domestic product and close to half of the government’s revenue for 2025. Sri Lanka’s total bilateral debt owed to China as of 2023 was $4.3bn, meaning the damages from the floods could be over one and a half times this amount.
Sri Lanka defaulted in 2022 for the first time but it has received global praise for its remarkable recovery, including from the International Monetary Fund. But Sri Lanka shows the world that, at a time of high debt globally, climate disasters can deal a heavy blow to many nations.
Sri Lanka’s default on its external debt resulted in one of the most complex debt restructurings in the world. In 2022, Sri Lanka’s debt stood at 128 percent of GDP, its inflation was around 70 percent and its government revenue was around 8 percent of GDP, which was one of the lowest in the world. The IMF programme, which started in 2023, revolved around the broad targets of achieving 15 percent government revenue to GDP by 2025, bringing public debt down to 95 percent of GDP by 2032, bringing gross financing needs down to 13.5 percent of GDP and external financing down to 4.5 percent of GDP.
The government had to increase taxes, adopt cost-reflective pricing and introduce non-populist measures. These have contributed to immense hardship for the people of Sri Lanka, where a quarter fall below the poverty line. But this resulted in the country getting back on track in fiscal terms.
Singapore Central Bank (MAS) survey shows stronger 2025
Economists have upgraded their outlook for Singapore’s economy in 2025, reflecting stronger-than-expected momentum this year, while continuing to expect monetary policy to remain on hold at the Monetary Authority of Singapore’s (MAS) next review in January.
According to the MAS quarterly survey of forecasters, median growth expectations for 2025 have been lifted to 4.1 percent, a sharp improvement from the 2.4 percent forecast in the previous survey. The upgrade follows a run of upside surprises in activity data, including a stronger third-quarter GDP print, and aligns with the Ministry of Trade and Industry’s recent move to raise its official growth forecast to around 4.0 percent. Growth in the fourth quarter is expected to come in at a solid 3.6 percent year on year, reinforcing the view that the recovery has broadened.
Looking beyond next year, economists expect growth to moderate to 2.3 percent in 2026, consistent with a more mature phase of the cycle and less support from base effects. While the near-term outlook has improved, respondents remain cautious about medium-term risks. Geopolitical tensions were cited as the most prominent downside risk, while concerns about a potential unwinding of the artificial intelligence-driven investment cycle emerged as a new theme in this survey.
On the policy front, there is strong consensus that the MAS will leave monetary policy unchanged at its January review, having already kept settings steady in October. Most economists also see policy remaining on hold in April, reflecting subdued inflation pressures and the MAS’s comfort with current conditions. Only a small minority anticipate any tightening by mid-2026.
Inflation forecasts remain benign. Core inflation is expected to average 0.7 percent in 2025, unchanged from the previous survey, while headline inflation is seen at 0.9 percent. Both measures are expected to pick up modestly in 2026, but remain well within the MAS’s tolerance range.