Growth and stability in the storm: steering Asean economies together

GROWTH, like momentum on a boat in a storm, is essential. You look forward, there is a breeze, and even when there are waves you feel more stable, less seasick. For decades, Asean countries have benefited from that sense of moving ahead.

With growth above global averages, there is political room to manage differences and cobble together political coalitions so most gain. With citizens, growth promises better incomes and jobs as part of the social contract. Foreign investors too are attracted and assured.

This macro-picture of growth is shifting.

War and blockages in the Strait of Hormuz generate energy chokepoints that will transmit global economic shocks, especially as stockpiles dwindle in the coming weeks. Asia is especially vulnerable, with high dependence on Middle East supplies and still growing energy demand, coupled with relatively low domestic and intra-regional energy supply.

Growth projections remain at around 4 per cent, but the winds are weaker, and the waves are rising. The situation is not only about energy, but inflation, rising food prices, disrupted supply chains, and increasing uncertainty for businesses and consumers.

Singapore’s Prime Minister Lawrence Wong recently warned that some economies might slip into recession if disruptions persist. As the economy drops, expect political tensions to rise.

Indonesia shows how quickly the situation can change. Street protests in August 2025, triggered by parliamentary perks, reflected economic anxieties about living costs, wages, layoffs and inequality. Driven by labour groups and students, these spread across dozens of cities and escalated into the most serious unrest in recent years.

Political signals in Vietnam are quieter but also present. National-language news increasingly highlights rising living costs, especially for workers in industrial zones. Pressures from food prices, housing and weaker export demand are being felt more widely, even if the system remains stable.

Leaders in these two Asean countries have publicly announced ambitions for 8 per cent or even 10 per cent growth. In different ways, each push has been deep and wide-sweeping. Current realities are different, however, and, even if there is no immediate crisis, adjustments may be warranted.

SEE ALSO

Singapore’s resilience and ‘unnatural resourcefulness’ amid global shocks

The cost of conflict: Asia’s energy risk

The fog of the Iran war

The challenges that lie ahead are not only about the economy but, fundamentally, politics and society.

Our region is shifting from the politics of expansion – with room to appeal to different interests – to questions of allocation. This means either/or choices over subsidies, wages and support measures become sharper and more contested. Economic stress may rise faster than political systems can adjust.

In Malaysia, energy subsidies remain a key challenge for government finances. Yet, any reform or reduction must be balanced against rising living costs. What is economically rational becomes politically sensitive when growth slows and pressures rise.

Thailand is managing a similar dilemma. The new Anutin government has maintained energy price caps and subsidies to smooth price increases. While it has announced around US$14 billion across a mix of measures to support lower-income groups and stimulate growth, earlier promises such as broad-based digital cash transfers will not proceed.

The private sector cannot assume that it will be unaffected. Expect taxation generally to tighten in implementation. Specific policy interventions can also hurt.

Indonesia, for example, has newly mandated that gig economy delivery workers will be paid more – by cutting the platform or commission fee that companies like Grab and GoTo charge, from 20 per cent to 8 per cent. This gives more money to drivers to help against inflation, but cuts sharply into company profits and will impact investors and even viability.

None of these are signs of breakdown. But they show how policy choices are increasingly constrained. It is not only growth at risk, but the foundations of stability.

The ability to manage the politics of allocation and maintain stability will vary between countries. Much depends on the relationships and trust between government, companies and workers – which Singapore calls “tripartism”.

Another critical factor will be the government fiscal position. Some have considerable reserves and others, since the pandemic, are unreplenished.

Yet even those with relatively strong positions can be affected if neighbours face instability. The region is increasingly perceived as interconnected. Regional cooperation will therefore be important.

Targeted collaboration

The aim should not be for grand new frameworks, but targeted steps that help members manage shared challenges.

Energy is the necessary starting point. Diversifying supply, strengthening regional grids, and supporting transition pathways – including increased renewable energy production and sharing – can reduce vulnerability over time.

Supply chains are another priority. Keeping trade flows open – especially for food and key inputs – will be critical as transport costs rise and fragmentation increases.

Looking ahead, an emerging concern will be financial.

As governments grapple with pressures of slower growth and higher demands to help citizens and assist companies, balance sheets and financial discipline may stretch. Sharing approaches to targeted subsidies, social protection and fiscal discipline could help governments navigate similar trade-offs more effectively.

Cooperation on macroeconomic information sharing and surveillance would also be prudent.

As fiscal space tightens, macroeconomic stability is no longer purely a domestic matter. Currency pressures, capital flows and investor sentiment now flow across countries, and a loss of confidence can cascade – as was the case in the Asian financial crisis of 1997-98.

It may be timely to strengthen macroeconomic surveillance and currency support systems.

The region already has foundations, built in the aftermath of the Asian Crisis. The Chiang Mai Initiative Multilateralisation (CMIM) provides a pool of liquidity support, while the Asean+3 Macro-Economic Research Office provides surveillance.

These mechanisms are often seen as backstops of last resort. But the present moment calls for them to become more active. Stronger and more visible surveillance can help identify risks earlier and signal policy credibility.

Expanding and de-stigmatising access to regional liquidity support – whether through CMIM or bilateral swap lines – can help anchor confidence. Closer coordination on capital flow management can also reduce the risk of destabilising swings.

The objective is not to create a new financial architecture, but to strengthen what already exists – incrementally, yet meaningfully.

Domestic efforts remain central. Governments will continue to rely on subsidies, transfers and policy interventions to manage immediate pressures. But these come with trade-offs. Expanding subsidies risks locking in fiscal burdens. Interventions can create expectations that are difficult to reverse. Efforts to shield domestic economies may also delay longer-term adjustments. Short-term stability may come at the cost of long-term resilience.

Regional cooperation can help ease this tension. By providing additional buffers – energy coordination, trade stability and financial support – Asean and its partners can help member states adjust more smoothly.

Growth remains, albeit at a lower rate and the region is not presently in crisis. But stability will be increasingly tested in the coming months.

Sustaining momentum – and allying it with stability – will now require more deliberate domestic choices and stronger regional support.

In this deepening storm, Asean economies are tied together and should steer together – connected to a wider regional and global system, and needing to act with greater coordination.

The writer is chairman of the Singapore Institute of International Affairs. His 2025 book is Island in the World: Singapore’s Geopolitical DNA. He has a monthly podcast with the Business Times, Simon Tay’s Political Cafe