ASEAN
Southeast Asia’s Islamic finance sector reaches USD 859 billion in 2023, with Malaysia leading the way 
(04 March 2025) Southeast Asia’s Islamic finance sector reached USD 859 billion in 2023, representing 17% of the USD 4.9 trillion global market, according to the ICD-LSEG report. Malaysia alone accounted for 80% of the regional total (USD 682 billion). Indonesia’s Islamic finance assets stood at USD 162 billion, lagging behind the UAE (USD 371 billion) and Kuwait (USD 198 billion). Malaysia remains the sector leader, topping the Islamic Finance Development Indicator rankings, with its score rising 40% in 2023, while Indonesia’s increased by 46.5%. Bank Negara Malaysia’s Governor stated that Islamic banking now represents nearly half of Malaysia’s total financing, with the Islamic interbank money market covering one-third of the market and Shariah-compliant stocks making up 81% of listed shares. Malaysia’s sukuk market accounts for 42% of global outstanding sukuk, with 2023 issuance rising to MYR 27.6 billion (USD 6.19 billion) from MYR 10.6 billion the prior year. LSEG forecasts the global Islamic finance market will exceed USD 7.5 trillion by 2028, with Southeast Asia’s share expected to expand, though the Islamic Financial Services Board warns that higher funding costs and tighter monetary policies could slow growth.

MALAYSIA
British semiconductor firm Arm Holdings signs USD 250 million agreement with Malaysia
(05 March 2025) British semiconductor firm Arm Holdings signed a USD 250 million agreement with Malaysia to support the latter’s expansion into high-end semiconductor production, including wafer fabrication and integrated circuit design. The deal, spanning a decade, aims to provide Malaysia with the capabilities and skills to manufacture and assemble chips domestically. Arm will also open its first Southeast Asian office in Kuala Lumpur to enhance its presence in the region, Australia, and New Zealand. The partnership includes training for 10,000 local semiconductor engineers and is intended to build a complete supply chain in AI data servers, autonomous vehicles, IoT, and robotics. Malaysian Prime Minister Anwar Ibrahim described the initiative as one of the country’s most ambitious technological projects. Malaysia currently accounts for 13% of global back-end chip manufacturing and is pursuing expansion in semiconductor design, with a planned semiconductor design park being announced in April 2024.

MALAYSIA
Bank Negara Malaysia maintains overnight policy rate at 3% in second meeting of the year 
(06 March 2025) Bank Negara Malaysia kept its overnight policy rate at 3% in its second meeting of the year, in line with analyst expectations, citing steady domestic growth and manageable inflation. The central bank stated that economic momentum should persist into 2025, supported by employment growth, consumer spending, and public and private sector investments. The government maintained its GDP growth forecast at 4.5%-5.5% for 2024 but warned of risks from the escalating global trade war and potential US tariffs on semiconductor imports, a key Malaysian export. Inflation is projected to average 2%-3.5% in 2025, up from 1.8% in 2024, with limited price pressure expected from wage increases and subsidy reductions. BNM noted that external factors will largely influence the ringgit, which strengthened 0.2% to 4.42 against the dollar following the decision. The ringgit was the best-performing emerging market currency in 2023 after BNM measures to repatriate overseas income. While Malaysia has resisted the global easing trend, the central bank signaled vigilance towards inflation and growth risks, suggesting that the 3% policy rate could be maintained throughout 2025.

MALAYSIA
Malaysia records over five million tourists under 30-day visa-free policy
(06 March 2025) Malaysia recorded 4,145,535 tourist arrivals from China and 1,464,499 from India under the 30-day visa-free policy implemented between December 2023 and December 2024, according to the Tourism, Arts and Culture Ministry. The ministry stated in a parliamentary written reply on 5 March that the policy contributed to national revenue and reinforced Malaysia’s position in investment, trade, and tourism. The response was issued to an MP in parliament, who inquired about the programme’s status and its impact on tourist arrivals. The ministry noted that the initiative successfully boosted tourism from high-potential markets.

VIET NAM
Viet Nam records trade deficit of USD 1.55 billion in February 2025
(06 March 2025) Vietnam recorded a trade deficit of USD 1.55 billion in February, reversing from a USD 3.02 billion surplus in January, according to government data. Exports increased by 25.7% year-on-year in February, while imports surged by 40%. For the January-February period, exports grew 8.4% and imports rose 15.9%, resulting in a trade surplus of USD 1.47 billion. Industrial production rose 17.2% year-on-year in February, significantly higher than January’s 0.6% growth. Retail sales increased by 9.4% from the previous year. Foreign investment inflows in the first two months of 2024 increased by 5.4% year-on-year to approximately USD 3 billion, while foreign investment pledges rose 35.5% to USD 6.9 billion.

THE PHILIPPINES
Annual inflation rate slows to 2.1% in February 2025, below median forecast
(05 March 2025) The Philippines’ annual inflation rate slowed to 2.1% in February, below the 2.6% median forecast and January’s 2.9% rate, marking the slowest increase since September. Core inflation eased to 2.4% from 2.6% in January. Food inflation declined to 2.6% from 4.0%, driven by a 4.9% drop in rice inflation, the steepest fall since April 2020. The central bank, which kept its key interest rate steady in February after three consecutive 25-basis-point cuts, remains on an easing cycle. Economists suggested a 25-basis-point rate cut could occur as early as April. The government previously declared a food security emergency to address high rice prices, which have remained elevated despite lower global costs and tariff reductions in 2024.

INDONESIA
Indonesia posts first annual deflation in more than two decades
(03 March 2025) Indonesia recorded a 0.09% year-on-year deflation in February, the first annual decline since March 2000, missing the lowest economist estimate of 0.04% inflation. Prices in the housing, water, electricity, and household fuel category fell 12% year-on-year due to extended government electricity tariff discounts. Staple food prices, including rice, tomato, and red chili, also declined, contributing to continued monthly deflation from January. Inflation remains below Bank Indonesia’s 1.5%-3.5% target range for 2025, though core inflation rose to 2.48% due to higher prices of gold jewellery and cooking oil. The rupiah gained for the first time in five days following the implementation of revised regulations requiring natural resources exporters to keep all foreign exchange earnings onshore for a year. Despite this, the currency has declined 2.32% year-to-date, making it the weakest performer among major Asian currencies.

RCEP Monitor

CHINA
China sets 2025 GDP growth target of about 5% while also raising fiscal deficit 
(05 March 2025) China has set a 2025 GDP growth target of “about 5%” and raised its fiscal deficit to 4% of GDP (the highest in three decades) to counter weak domestic demand, youth unemployment, and a property sector debt crisis. Premier Li Qiang announced plans to create 12 million new urban jobs as the government targets 2% inflation, while also emphasising domestic demand as the primary growth driver. The 32-page government report highlighted external challenges, including trade and technology restrictions, and internal weaknesses such as sluggish consumption. The defence budget will rise by 7.2% to CYN 1.78 trillion (USD 245 billion), continuing China’s military modernisation under President Xi Jinping’s 2035 goal, with spending allocated to missile systems, submarines, and surveillance technology. The military is also increasing training and drills, focusing on Taiwan and the South China Sea. China remains the world’s second-largest military spender behind the US..

AUSTRALIA
Australia’s economic inequality reaches 20-year high in 2022
(05 March 2025) Australia’s economic inequality reached a 20-year high in 2022, with the Gini coefficient rising to 0.32, the first time exceeding 0.31 since 2001, according to the latest HILDA survey. Higher incomes grew faster than middle incomes, while lower incomes stagnated, reversing the reduction in inequality seen during the pandemic. More than half of respondents reported a decline in real income between 2021 and 2022. Childcare costs increased by 76% per child for single parents since 2006, compared to 48% for couples. Wage inequality among women grew by 10.5% over the course of the survey, with full-time female employees experiencing a 4.8% decline in average earnings and a 6.8% drop in middle-income earnings.

JAPAN, UK
Japan and UK to hold first economic “two-plus-two” dialogue on 07 March
(06 March 2025) Japan and the U.K. will hold their first economic “two-plus-two” dialogue on 07 March, with Japanese Foreign Minister Takeshi Iwaya and Economy Minister Yoji Muto meeting British Foreign Secretary David Lammy and Business Secretary Jonathan Reynolds in Tokyo. The officials will emphasise the importance of free trade amid rising U.S. protectionism and sign a memorandum on offshore wind power cooperation. Discussions will cover supply chain security for critical materials, economic security challenges, and recent U.S. tariff policies. Japan and the U.K. are not currently subject to U.S. tariffs but face potential levies, with Muto set to visit Washington to discuss Japan’s exemption from proposed steel and automobile tariffs. The two countries are considering a working-level consultation on economic security, including semiconductor and mineral supplies, and aim to promote cooperation in artificial intelligence, quantum computing, and biotechnology. They will also monitor market distortions from government-subsidised Chinese electric vehicles and solar panels. Discussions may include energy security, engagement with the Global South, and assistance for Ukraine’s reconstruction. The U.K. implemented an economic partnership agreement with Japan in 2021 and joined the CPTPP in 2023.