“Most of the economies plan to send a delegation for negotiations to the US this month. Whether this will lead to lower reciprocal tariffs for the Asean-5 economies is unclear at this stage,” she adds.
US President Donald Trump has said that he will make “tailored deals” with partner countries. The first signs will likely come from already-organised talks with Japan and South Korea, says Venkateswaran.
The region is also exploring measures to reduce tariffs on US imports, remove non-tariff import barriers and strengthen rules of origin enforcements to cater to the US’s demands to reduce trade imbalances.
“Ultimately, these measures will hold these economies in good stead, reducing inefficiencies in trade, which have long been a pet peeve of many domestic and foreign investors,” says Venkateswaran.
See also: Southeast Asia rushes to avert tariff pain by enticing Trump
While the authorities of the Asean-5 economies have not reduced growth forecasts officially, some have put the 2025 growth forecast under review, including Malaysia.
“The authorities across the region will likely have to step up on fiscal support should growth conditions deteriorate further,” adds the economist.
See also: Tariffs to alter trade flows, risks to Asean quite low for now, says CGSI
Central banks to lean towards supporting growth
While the impact on GDP growth is still to be determined by various country authorities, the role of the central bank in the near term will likely be tailored towards preventing further backsliding of confidence and maintaining smooth functioning of FX market operations, says Venkateswaran.
This playbook was adopted by the Asean-5 central banks — Bank Indonesia (BI), Bank Negara Malaysia (BNM), Bank of Thailand (BoT), Bangko Sentral ng Pilipinas (BSP) and the State Bank of Vietnam (SBV) — during past periods of volatility. Venkateswaran expects this time will be no different.
More fundamentally, the balancing act for regional central banks will only become more delicate as it comes to grip with the growth impact of tariffs, she adds.
BNM Governor Abdul Rasheed Ghaffour said on April 9 that “monetary policy cannot resolve trade wars”. “It’s not the best tool to do it.”
For now, a significant proportion (20.5%) of Malaysia’s exports to the US is still exempt from tariffs, suggesting that the probability of near-term rate cuts is low, says Venkateswaran. “In time, however, monetary policy has the room to cushion against the downside risks for firms and households as the impact of the trade war on the real economy becomes more evident.”
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Venkateswaran has pencilled in a cumulative 50 basis points in rate cuts from BNM in 2026, but there is a “rising risk” that this could be brought forward to 2H2025 should economic growth slow sharply.
For the other Asean central banks, Venkateswaran expects rate cuts in 2H2025. “We have pencilled in a cumulative 50bp in rate cuts from BI, BSP, BoT and SBV for the remainder of this year.”
Tables: OCBC
