Tariff rush lifts ASEAN exports, but BofA warns payback looms in H2

Bank of America has upgraded its GDP forecasts for Vietnam, Malaysia, Singapore, and, to a lesser extent, Indonesia, citing reduced second-half downside risks and a temporary surge in U.S.-bound exports, partly driven by tariff front-loading. This has bolstered factory orders and purchasing managers' indices, alongside resilient domestic demand across major ASEAN economies. However, BofA cautions that this export front-loading is temporary, anticipating an 'eventual exports and inventory pay-back' to weigh on growth from late 2025. While inflation remains contained, central banks in the region generally retain an easing bias, though the expected depth of rate cuts varies across economies.

Analysis

Bank of America has upgraded its near-term GDP forecasts for Vietnam, Malaysia, Singapore, and Indonesia, citing reduced downside risks for the second half of the year. The improved outlook is primarily driven by a short-term surge in factory orders and shipments to the United States, which BofA attributes partly to companies front-loading orders ahead of new tariff implementations. This has been evidenced by rising purchasing-managers' indices in Vietnam and Thailand, alongside wider gains in direct exports from Malaysia and Vietnam. The region's economic resilience is further supported by strong domestic fundamentals, including unemployment rates below pre-pandemic levels and targeted fiscal support. However, the report cautions that this export-driven momentum is temporary, explicitly forecasting an 'eventual exports and inventory pay-back' that is expected to weigh on growth starting from late 2025. The outlook is not uniform across the region, with the Philippines' forecast remaining unchanged due to lower tariff exposure and Thailand expected to lag due to local factors. Inflation is projected to remain contained, allowing most regional central banks to maintain an easing bias, though the depth of rate cuts is expected to vary, with more significant easing anticipated in Indonesia, the Philippines, and Thailand compared to Malaysia and Singapore.

Key Decisions for Investors

• Investors should be cautious about extrapolating the current positive export data, as the growth is attributed to temporary tariff front-loading with an expected inventory correction and growth headwind from late 2025.
• A country-specific investment strategy is crucial; consider overweighting economies with resilient domestic demand and direct export gains like Vietnam and Malaysia, while being circumspect about Thailand due to its specific local drags on activity.
• Monitor the divergent monetary policies, as the deeper rate-cutting cycles expected in Indonesia, the Philippines, and Thailand will likely create different currency and fixed-income dynamics compared to the more stable policy stances in Malaysia, Singapore, and Vietnam.