Investing.com-- Economic growth in the Asia-Pacific region is likely to face headwinds in 2025 due to potential U.S. tariff increases, a strong dollar, and weaker export demand, UBS analysts said in a research note.
UBS economists forecast a regional slowdown of 0.5 to 1 percentage point in real gross domestic product (GDP) growth, with much of the impact expected in the second half of the year as trade barriers tighten and U.S.-China tensions escalate, analysts said.
Cyclical exporters such as South Korea and Taiwan are likely to experience a more pronounced slowdown, while domestically oriented economies like India and the Philippines should show greater resilience, according to UBS.
Mainland China, a focal point of U.S. tariff strategies, is expected to employ extensive fiscal and monetary measures to counterbalance the adverse effects of trade barriers and property sector drag. UBS projects China’s 2025 growth to stabilize at mid-4%, supported by fiscal packages ranging from RMB 2 to 4 trillion targeting local debt resolution, property inventory reductions, and bank recapitalization.
While monetary easing is underway, with 50 to 100 basis points of reserve requirement ratio cuts and further policy rate reductions, the challenges posed by higher tariffs could weigh on near-term growth prospects, UBS analysts wrote.
Meanwhile, economies in Southeast Asia are likely to see policy shifts to maintain growth momentum. UBS anticipates rate cuts across India, Indonesia, and the Philippines, while countries like Malaysia and Taiwan could hold steady amid currency and trade concerns.
Despite the economic strain, UBS continues to favor investment in high-quality investment-grade Asian credits, citing stronger fundamentals and lower volatility compared to high-yield options.
"Positioning in short- to medium-duration bonds (average duration of five years) would limit downside volatility from higher long-end rates," analysts added.