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Wawasan Kekayaan

April 2025

ASEAN and India among hardest hit by US tariffs

Within ASEAN, Cambodia, Laos, Vietnam and Myanmar bear the bigger brunt of tariff increases. This is followed by Thailand, Indonesia, Malaysia and the Philippines.

Carmen Lee
Head, OCBC Investment Research,
OCBC

Singapore’s Prime Minister and Finance Minister Lawrence Wong delivered his first Budget Statement on 18 Feb 2025, coinciding with SG60, the 60th anniversary of Singapore’s independence.

The budget focused on six key areas: i) tackling cost pressure, ii) advancing Singapore’s growth frontiers, iii) equipping workers throughout their life, iv) building a sustainable city, v) nurturing a caring and inclusive society, and vi) rallying as one united people.

In line with these priorities, Singapore announced a range of support measures for households and businesses, including cost-of-relief vouchers, skills upgrading initiatives for workers, and tax rebates.

Near term cost-of-living relief for the people

The budget covered a few key themes including skills upgrading for workers and senior citizens, readying Singapore for future growth, support for all Singaporeans and marking SG60 celebrations, with all citizens aged 21 and above to receive S$600 from Jul 2025 onwards (S$800 for seniors aged 60 and above). Other goodies included:

  • S$800 of Community Development Council (CDC) vouchers per household
  • Higher grants to buy 2-room or 3-room flat (from S$50,000 to S$75,000)
  • S$100 of Climate vouchers per HDB household in addition to the S$300 from last year; program was extended to private properties this year (S$400)
  • Personal income tax rebate of 60% for FY25, capped at S$200
  • S$100 of Culture Pass per person for Singaporeans aged 18 and above
  • Central Provident Fund (CPF) rate for those aged 55-65 will increase by 1.5% in 2026
  • S$500 of LifeSG Credit will be provided for every Singaporean child aged 12 and below, which parents can use to help defray household expenses
  • Parents having their third child or more will get S$16,000 in extra support

While the above is largely positive for a pro-individual and pro-family budget, uncertainties and rising costs remain an issue. With geopolitical tensions and the rising trade tensions, regional trades and growth could be impacted in the coming years. While these measures will help to ready Singapore for part of the challenges ahead, the wide adoption of AI and Singapore’s ability to adapt to these changes will determine its longterm growth.

Long-term economic priorities and benefits for businesses

For companies, a corporate income tax rebate of 50%, capped at S$40,000 will be given. The government is also upping the co-funding for wage increases for lower-wage Singaporeans from 30% to 40%. On the construction and infrastructural front, more than 50,000 built-to-order (BTO) flats will be launched in the next three years. The Changi Airport Development Fund will also receive a S$5 billion top-up to ensure sufficient resources to develop Singapore's air hub.

In August 2024, the Monetary Authority of Singapore (MAS) announced that a Review Group had been formed to recommend measures to strengthen equities market development in Singapore. On 13 February 2025, the Equities Market Review Group announced its first set of measures to strengthen Singapore’s equities market development. These include proposals to introduce tax incentives to spur more listings and investments in Singapore’s equities market, which the Review Group has submitted to the PM and Minister for Finance. The PM has accepted their recommendations and will be introducing tax incentives for Singapore-based companies. There will also be tax incentives for fund managers which invest substantially in Singapore-listed equities. Subsequently, on 21 February 2025, the Monetary Authority of Singapore (MAS) launched a $5 billion programme through which it would partner with selected fund managers to invest in Singapore stocks, while streamlining regulations to help facilitate listings, among other measures. These measures were part of recommendations by the Equities Market Review Group. If the group can generate more interest in the Singapore market, this could help to raise market valuations and potentially result in a re-rating of the Singapore market.

Impact on Real Estate sector

Unlike last year, there were no new measures announced during Budget 2025 that would directly impact the property sector in a material manner. Given the focus on addressing cost of living pressures, the CDC vouchers issued to Singaporean households and the LifeSG credits for families with Singaporean children aged 12 and below (S$500 per child) would boost consumption spending and thus benefit retail REITs. However, the boost would be marginal as the rental income of retail REITs is predominantly made up of base rents; gross turnover rents typically contribute mid-to-high single digits of their total gross revenue.

PM Wong also highlighted that the government was paying close attention to the affordability of the public housing market and will be maintaining the robust supply pipeline of Build-To-Order (BTO) flats. The Ministry of National Development (MND) will launch more than 50,000 flats across different locations over the next three years. To accommodate home seekers who prefer quicker access to housing, approximately 20% (3,800 flats) of the 19,600 BTO launches planned for 2025 will have a waiting time of less than three years. In 2024, HDB resale prices jumped by 9.7%, outpacing the 4.9% increase in 2023. The new BTO supply, along with previously announced cooling measures such as the reduction in the loanto-value (LTV) ratio of HDB loans from 80% to 75%, would help to manage price growth of the HDB resale market.

Companies that could be impacted include APAC Realty Limited [non-rated], PropNex’s, CapitaLand Ascendas REIT and CapitaLand Investment Limited

Impact on Industrials

PM Wong mentioned during his speech that Singapore supplies more than 10% of semiconductor chips and produces one-fifth of semiconductor equipment globally. To support further innovation and technological progress, the government will be making a S$3 billion top-up to the National Productivity Fund (NPF). Within the biotech and semiconductor sectors, the government will also invest an additional S$1 billion in research infrastructure, including the development of a new national semiconductor research and development (R&D) fabrication facility. Further details on this initiative are still pending. Separately, the Future Energy Fund will also receive a S$5 billion top-up to support expanding access to clean energy and greater energy resilience.

Finally, to develop and ensure the competitiveness of Singapore’s air hub, the Changi Airport Development Fund will receive a S$5 billion boost, with Changi Airport’s Terminal 5 (T5) set to break ground in the coming months. The government will also provide a guarantee to Changi Airport Group (CAG) to lower the cost of borrowings needed to develop T5 and supporting infrastructure in the Changi East area. With T5, Changi Airport’s capacity will expand by more than 50%.

Companies which could be impacted include Frencken Group, Sembcorp Industries, Keppel Ltd, Keppel Infrastructure Trust and Nanofilm Technologies.

Impact on Consumers

This year’s budget contained a slew of supportive measures to help households cope with the elevated cost of living. This could potentially provide some boost to consumption spending locally.

Other measures such as U-Save rebates of up to S$760 for eligible HDB households to offset their utility bills and personal income tax rebates of 60% for Year of Assessment 2025 (capped at S$200) also contribute towards increasing disposable incomes. However, the incremental benefit to local retailers is more obscure given that this may also potentially encourage an increase in outbound travel, which would dilute spending domestically.

Companies that could be impacted include Sheng Siong as well as retail REITs such as Frasers Centrepoint Trust and CapitaLand Integrated Commercial Trust.

Impact on Communication Services

The government will allocate S$150 million for a new Enterprise Compute Initiative. This program aims to assist businesses in adopting AI by partnering them with major cloud service providers, granting access to AI tools, computing resources and expert consultancy services. The initiative will support enterprises that need AI solutions tailored to their needs and integrated into their business processes and systems.

Companies that could be impacted include Singapore Telecommunication and NetLink NBN Trust.

Impact on Singapore stock market

We maintain a positive outlook on the Singapore market, primarily due to its defensive characteristics and attractive dividend profile. With a current dividend yield of 5.3%, investors benefit from a healthy spread of 2.4% over the 10-year Singapore government bond yield, making it an appealing income-generating option. Additionally, the Straits Times Index (STI) exhibits lower volatility compared to its regional peers, making it a viable diversification option for sheltering against overall market fluctuations. Furthermore, despite a 16.9% price increase in 2024, the STI's valuations remain undemanding, currently trading at a forward P/E ratio of 11.8x, which is 0.5 standard deviations below its 10-year historical average. Moreover, potential capital market improvement measures proposed by the Equities Market Review Group could lead to a further positive re-rating for the Singapore market.

We note that there are potential downside risks on the external front. Although Singapore ended 2024 on a strong note, achieving a growth rate of 4.4% and surpassing the Ministry of Trade and Industry's (MTI) latest expectation of 4%, the Ministry of Trade and Industry has maintained its GDP growth forecast for 2025 at 1-3% year-on-year (YoY). This cautious outlook is influenced by several factors, including the escalation of geopolitical conflicts and increased uncertainty surrounding US trade policies. Even if Singapore avoids direct tariffs from the US, it remains indirectly affected; potential tariffs on its major trading partners could lead to a slowdown in global economic growth and trade.

Selected Singapore stocks under coverage

Source: Bank of Singapore; updated on 18 Feb 2025

Important Information

President Donald Trump finally unveiled on 3 April 2025 a blanket tariff on 10% on all imports into the US as well as reciprocal tariffs on several countries. We believe this is not the end of road for tariffs. There is still room for negotiation, retaliation and further potential escalation.

Our analysis of tariffs has spanned from blanket tariffs, like what we got on 3 April 2025, to reciprocal tariffs, to sector specific tariffs. The ASEAN economies we cover were hard hit by tariffs as we had expected but the magnitude of the hit is much larger than we anticipated. This is partly based on the US computation of the tariffs imposed on it by trading nations resulting in hefty tariff rates and subsequently discounted differential tariffs.

Both are dramatic in their magnitude. These will have implications for growth, inflation, and fiscal and monetary policies. Admittedly, there are still some uncertainties. This pertains to the room to retaliate and/or negotiate. Although US Treasury Secretary Scott Bessent warned against retaliation, the strategy adopted by trading partners remains to be seen.

Significant downside risks to growth

Within ASEAN, Cambodia, Laos, Vietnam and Myanmar bear the bigger brunt of tariff increases, in terms of the magnitude of higher differential tariffs. This is followed by Thailand, Indonesia, Malaysia and the Philippines. India’s differential tariffs of 27% seems marginal compared to the long list of trade restrictions mentioned in the 2025 National Trade Estimate (NTE).

The blanket tariffs will come into effect on 5 April 2025, while reciprocal tariffs will come into effect on 9 April 2025. There are still some exemptions under the reciprocal tariff arrangements, including those items that are already under investigation including copper, pharmaceuticals, semiconductors, lumber articles, certain critical minerals, energy and energy products. There is a risk of tariffs on these products or higher blanket tariffs down the road.

The sharp escalation of tariffs rates, if realised, will have a hard-hitting impact on economic growth through the export channels. Based on import elasticities and our back of the envelope calculations, Vietnam will be hardest hit with GDP growth, followed by Thailand and Malaysia while Indonesia and India could be more insulated. Philippines, by our estimates, will be least impacted.

Central banks more inclined to support growth

We now expect regional central banks to become more supportive of growth, particularly in 2H25. We are adding rate cuts to our Vietnam, Thailand, Indonesia and India forecasts. We expect the State Bank of Vietnam and Bank of Thailand to cut by an additional 50 basis points (bps) in 2H25, while Bank Indonesia and Reserve Bank of India will likely cut by an additional 25bps on top our current forecast of 25bps. This implies an additional 50bps in rate cuts by end-2025. Although the growth impact is limited for Philippines, we expect that the country’s central bank, Bangko Sentral ng Pilipinas (BSP), will take the opportunity to lower rates further to mitigate downside risks. We, therefore, expect a cumulative 50bps in rate cuts in 2025.

Singapore: Still cautious

The silver lining is that 10% is relatively mild compared to China, Vietnam and many of the other ASEAN countries. Singapore’s resilience will depend on how well it adapts to shifting trade flows, potentially benefiting from companies diversifying away from the more heavily tariffed countries, while managing broader economic uncertainties and financial market volatility. But the indirect impact is through knock on effects through our role as trading, logistics and financial hubs. For Singapore, the top three NODX (non-oil domestic export) markets in 2024 are China (17%), US (15.8%) and Malaysia (8.7%). Moreover, there was no specific sectoral tariffs on semiconductors or pharmaceutical industries for instance. But the caveat is we have to wait and see what happens in the coming days and weeks.

For now, it is too early to say what the tariffs mean for Singapore. But the odds may be slightly skewed towards an easing of policy by Monetary Authority of Singapore.

Vietnam: Hardest hit

We reduce our 2025 GDP growth forecast to 5.0% YoY versus our previous forecast of 6.2%. Vietnam’s exports to the US totalled US$119.4bn in 2024, which can be reduced by as much as 35-40%, by our estimates. The impact on economic growth, however, is not straightforward particularly for 2025 considering that 1Q25 GDP growth was already relatively resilient at 6.6% YoY, by our estimates. Moreover, with semiconductors exports still exempted from the reciprocal tariffs’ announcements, the hit to exports will likely be reduced.

The authorities have been negotiating with the US in terms of trying to reduce tariffs and raising imports from the US. While the outcomes are still uncertain, we expect the authorities to remain focussed on expediting infrastructure spending and diversifying trade partners. The higher reciprocal tariffs on most goods, and likely impending tariffs on semiconductors, suggests that fiscal and monetary policies will have to be nimble. We now expect the State Bank of Vietnam to reduce its policy rate by 50bps this year compared to our previous forecast of no change.

Thailand: Next in line

The reciprocal tariff rates imposed on Thailand is 37%. Vuttikrai Leewiraphan, permanent secretary at the Ministry of Commerce, estimated that exports could be hit by US$7-8bn if tariffs on Thailand’s exports to the US were raised by 11%. This suggests a significant impact. However, with certain key items still exempt from tariffs (for the moment), we expect the hit to growth to remain significant at 0.8 percentage points (pp). We, therefore, reduce our 2025 GDP growth forecast to 2.0% from 2.8%.

While the authorities have been transparent about their intent to negotiate with the US, and the Thai authorities have agreed to import certain goods from the US, the outcome of further negotiations and the fate of the semiconductor tariffs remain uncertain. We now expect the Bank of Thailand (BoT) to reduce its policy rate by 50bps in 2025 to further bolster downside risks to growth, with the government continuing to pursue supportive fiscal policies.

Malaysia: Waiting for semiconductor tariffs

We reduce our 2025 GDP growth forecast to 4.3% YoY from 4.5% given the impact of weaker external demand as most of Malaysia’s trading partners are hit by tariffs. The relief for Malaysia’s exports, for the moment, is that semiconductor exports are still exempt from the reciprocal tariffs. This accounts for approximately a third of total exports to the US. Given the nature of the reciprocal tariff announcements, it seems like only a matter of time before semiconductor exports are slapped with tariffs. This will have a more significant impact on Malaysia’s GDP growth. The authorities have said that they will not pursue retaliatory tariffs and opt for negotiations.

While the stance of fiscal and monetary policy may not make dramatic shifts, it will likely lean towards becoming more growth supportive. The government plans to rationalise RON95 prices in a bid to reduce fuel subsidy expenditures. The government has stated that low-income groups will not be impacted. We see rising risks that this implementation could be delayed particularly if tariffs on semiconductor exports to the US are announced before 2H25.

If this price change materialises, Bank Negara Malaysia will be more inclined to look through supply-side shocks, but this will impact the timing of potential rate cuts to mitigate downside risks to growth. BNM could open the door to rate cuts in late 2025 or early 2026. If the price change is delayed, BNM could ease sooner.

Indonesia: Surprisingly hard hit

The reciprocal tariff rate of 32% is substantial and one of the most surprising, by our estimates. The economy is already hard hit by perceived uncertainties around domestic policy direction and cloudy fiscal policy outlook given weaker-than-expected revenue collections and budget reallocations. The higher-than-expected tariff rate will exacerbate these risks. We reduce our 2025 GDP growth forecast to 4.7% from 4.9% and expect that the worsening of current account deficit (1.4% of GDP in 2025 versus 0.6% in 2024) will put further pressure on the economy to maintain strong capital inflows even as the outlook for the latter remains uncertain.

The government and central bank will need to be nimble in their policy approach to prevent a further backsliding of sentiment. The government will have to ramp up communications and improve its perceived image on policy making.

Bank Indonesia (BI) has tied further rate cuts to the stability of the Indonesian Rupiah as the downside risks to growth becoming increasingly obvious. It is worth noting that the anecdotal activity data during the Eid holidays have been lower compared to 2024. We expect BI to now cut by a cumulative 50bps in 2025, compared to 25bps previously. However, the timing for BI rate cuts needs to become more proactive and less tied to currency outcomes to enable more timely growth support.

Philippines: Better by comparison

The reciprocal tariffs at 18% is the lowest in the region and the impact on GDP growth will also be concomitantly lower. Like Malaysia, Philippines exports to the US is biased towards semiconductors, which are still exempt from tariffs at the moment.

We expect GDP growth to be slightly lower at 5.9% YoY in 2025 versus 6.0%, previously. We expect BSP to follow on with two 25bps rate cuts for the rest of 2025, particularly as headline inflation remains well within BSP’s 2-4% target range.

India: In the middle but limited impact

India’s tariff rate of 27% looks more manageable compared to regional peers. However, there will be a modest hit to growth of 0.2pp considering weaker external demand. As a predominantly domestic demand driven economy, the impact of higher tariffs from the US will likely have sector specific impacts.

From a policy perspective, further simplification of non-tariff trade measures and continued negotiations with the US will likely keep the Indian economy in good stead. The Reserve Bank of India (RBI) has increased banking sector liquidity to allow for further rate cuts, in our view. We expect the RBI to reduce its policy rate by two 25bps rate cuts for the rest of 2025.

FDI investment flows could change

The reciprocal tariffs on ASEAN and India will hurt the ‘China+1’ strategy that has benefited the region for some years now. Although China’s tariff rate is still higher at 54% (reciprocal 34% plus previously imposed 20%), the elevated tariffs on Cambodia and Vietnam suggest that the allure of shifting production to these economies is reduced compared prior to the tariffs. It will, however, take time for global supply chains to adjust and in the interim, firms will either need to bear the brunt of the tariffs or pass it onto the consumer, complicating the picture for price pressures.

In the interim, the ASEAN markets will remain vigilant of lower goods coming in from China. China’s surplus with the ASEAN markets increased significantly in 2024 and we do not rule out further measures from these economies to protect against the inflows of goods at reduced prices from China.

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