This shift comes at a delicate time. After a volatile 2024, fears of a global recession have eased slightly, with estimates of recession risk now at 20%–30%, down from earlier highs. However, should the new tariffs take effect, market sentiment could sour quickly. Investors would be forced to re-evaluate global growth assumptions, and volatility would likely return in force.
The US economy is already slowing, with 2025 GDP growth expected to fall between 1.0% and 1.5%. Inflation, which had been cooling, could rebound — potentially reaching 3.5% to 5.0% — as import costs rise. Under intense tariff pressure and facing slowing demand, China is likely to see growth ease to 4.0%–4.5%. These dynamics will inevitably spill over into Southeast Asia, a region deeply embedded in global value chains.
Singapore, in particular, is vulnerable. While direct trade exposure to the US is modest at around 10% of total trade, Singapore is significantly linked to China, which accounts for 13.6% of its trade. The city-state exports a wide range of intermediate goods that feed into Chinese production lines, especially semiconductors, chemicals, and transport machinery. As Chinese exports falter under US tariffs, demand for these inputs may weaken in tandem. If further restrictions are imposed on high-value sectors like electronics or pharmaceuticals, Singapore’s manufacturing performance could deteriorate sharply.
As such, we have revised Singapore’s GDP growth forecast for 2025 down to 2.0%. If trade tensions escalate further and external demand continues to soften, growth could fall to as low as 0.5%–1.0%.
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That said, there are reasons for cautious optimism, particularly if regional policy coordination strengthens. One promising development is the newly established Johor–Singapore Special Economic Zone (SEZ) — a cross-border initiative designed to enhance trade, investment, and labour mobility between the two neighbours. The SEZ aims to facilitate collaboration in key growth areas such as digital trade, smart logistics, and advanced manufacturing. It also symbolises a broader trend: as the global economy becomes more fragmented, regional integration becomes an imperative.
The SEZ offers tangible benefits. Singapore provides access to cost-competitive industrial capacity and talent from Johor. For Malaysia, it is an opportunity to attract higher-quality investment and benefit from Singapore’s global connectivity and financial infrastructure. If managed well, it could serve as a blueprint for Asean cooperation, reinforcing the case for stronger intra-regional supply chains and reducing reliance on external demand.
Asean, as a bloc, should build on this momentum. Deeper regional integration can prevent competition against each other within the region for short-term gains and strengthen regional supply chains and economic resilience. Coupled with efforts to develop digital infrastructure and green capabilities, Asean can position itself as a credible alternative in global manufacturing diversification. Already, Vietnam, Indonesia, and Malaysia are benefitting from firms adopting “China+1” strategies — diversifying production bases away from China to manage geopolitical risk. However, success will depend on continued reform: streamlining regulation, investing in skills, and improving logistics networks.
See also: Sino-US trade war presents hard choices for Southeast Asia
For Singapore, domestic policy space remains an important buffer. Despite the Monetary Authority of Singapore’s (MAS) recent move to ease its policy stance — likely adjusting the S$NEER appreciation slope to +0.5% — monetary conditions remain accommodative. The current S$NEER level, approximately 0.52% above the midpoint, suggests that MAS still retains the flexibility to support the external environment further. Assuming the standard ±2% policy band, we estimate remaining room for currency adjustment at around 2.5%, which could help cushion downside risks to growth.
On the fiscal front, Singapore is also well-positioned. The FY2025 Budget already includes targeted cost-of-living support, such as CDC vouchers, U-Save rebates, and SG60 payouts, while offering relief to businesses through a 50% corporate tax rebate. We continue to expect a modest fiscal deficit of 0.8% of GDP. Should conditions worsen, Singapore has a demonstrated track record of deploying counter-cyclical stimulus. During the Covid-19 pandemic, it implemented the SkillsFuture Jobseeker Support Scheme. During the global financial crisis in 2008–09, the government rolled out a $20.9 billion stimulus package. This fiscal strength remains a strategic advantage.
Still, recent developments offer little reassurance. The exemption of tariffs on electronics and pharmaceutical goods, while initially welcome, may be offset if broader tariff escalation continues. The trade outlook for 2025 remains highly uncertain and hopes that the impact will be short-lived may prove overly optimistic.
The coming months will test the resilience of global economic systems. For Asean, the way forward is clear: deepen regional cooperation, invest in structural transformation, and prepare proactively for continued trade volatility. In this new era of protectionism, unity may prove to be Southeast Asia’s most valuable economic asset.
Barnabas Gan is the group chief economist and head of market research at RHB Group
