THAILAND
Thailand’s tourism recovery plan disrupted by escalating Middle East conflict
(16 March 2026) Thailand’s tourism recovery plan targeting 36 million foreign visitors in 2026 faces disruption due to escalating Middle Eastern tensions and the war involving Iran, which has increased flight costs and caused travel disruptions. Visitor arrivals had already declined 7% in 2025 to 32.9 million due to fewer Chinese tourists, and industry estimates now indicate a potential 10%–15% further decline in arrivals. Airlines have been forced to reroute flights around conflict zones, increasing fuel costs and ticket prices, while cancellations affecting routes through transit hubs such as Dubai have disrupted European travel to Thailand. Data from the Ministry of Tourism and Sports showed foreign arrivals fell 8.9% week-on-week to 616,229 in the first week of March, immediately after military strikes by the United States and Israel on Iran. Arrivals from Europe and the Middle East declined 18% during the same week, despite these markets accounting for 27% of all foreign visitors in 2025. Thai Airways International announced ticket price increases of 10%–15% due to rising fuel costs, with other airlines signalling similar adjustments. The Center for Economic and Business Forecasting estimates tourism revenue losses of up to THB 29 billion (USD 895 million) if the conflict persists for six months, or 9 THB billion–20 billion if it lasts one to three months. Tourism-related sectors contribute roughly 20% of Thailand’s GDP, and destinations such as Phuket, which rely heavily on European and Middle Eastern visitors, are expected to face the largest impact. Industry groups have urged the government to increase tourism promotion in Asian markets, particularly China, India and Malaysia, which sent 4.4 million, 2.4 million, and 4.5 million travellers respectively in 2025.

INDONESIA
Equities and government bonds decline amid concerns over budget deficit
(16 March 2026) Indonesian equities and government bonds declined amid concerns that the administration of Prabowo Subianto is moving towards removing the longstanding 3% budget deficit cap as rising oil prices linked to the war involving Iran increase fiscal pressure. The Jakarta Composite Index fell as much as 3.1% to an eight-month low, marking a potential fourth consecutive day of losses, while transport and property stocks led declines. Indonesia’s 10-year government bond yield rose 11 basis points to a 10-month high, and the rupiah weakened 0.2% to 16,985 per US dollar. Prabowo stated he would consider exceeding the deficit ceiling only temporarily in emergency situations. Analysts noted that maintaining the deficit cap may require either widening the fiscal gap or reducing growth spending. Higher oil prices could strain fiscal assumptions in the state budget, while reduced transaction values have been noted as investors delay positions ahead of the Eid holiday period. Yield risk is increasing for fixed-income investors, and foreign bond outflows may intensify if global risk sentiment deteriorates further. The weak equity performance has been attributed partly to thin liquidity, upcoming market closures during the holiday period, MSCI-related concerns, and fiscal deficit uncertainty. Analysts also warned that a weaker rupiah combined with higher energy costs could prompt a more hawkish policy stance from Bank Indonesia to contain imported inflation.

INDONESIA
Indonesia preparing budget cuts across ministries and agencies due to high oil prices
(16 March 2026) Indonesia is preparing budget cuts across ministries and agencies to prevent the fiscal deficit from exceeding the 3% of GDP legal ceiling amid rising oil prices. The government is modelling scenarios of a prolonged Middle East conflict lasting five to ten months and may consider relaxing the deficit cap only if the war persists for at least five months. Spending reviews will target operational costs such as official travel and equipment, while flagship programmes under President Prabowo Subianto, including free meals and village cooperatives, will be protected. Brent crude remains above USD 100 per barrel, significantly exceeding the USD 70 assumption in the 2026 budget, increasing subsidy pressures as Indonesia is a net oil importer reliant on fuel subsidies via Pertamina. Indonesia’s Finance Minister confirmed no plans to raise subsidised fuel prices, with higher costs to be absorbed by the state budget to avoid social unrest. The government also plans to increase revenues by capturing windfalls from coal, nickel and palm oil exports and intensifying enforcement against underinvoicing by exporters. Market conditions have deteriorated, with the Jakarta Composite Index falling up to 3.1% intraday and closing down 1.6%, while the rupiah weakened towards IDR 17,000 per dollar versus a IDR 16,500 budget assumption. Analysts highlight combined risks from elevated oil prices and currency depreciation, increasing fiscal strain through higher subsidy costs. The policy response is being assessed by markets as a test of Indonesia’s fiscal discipline under external shock conditions.

SINGAPORE
Business sentiment weakens following outbreak of war in Iran
(16 March 2026) Business sentiment among Singapore companies weakened following the outbreak of war involving Iran, which has increased energy prices and disrupted supply chains. The Singapore Commercial Credit Bureau reported its Business Optimism Index (BOI) for Q2 2026 declined to 4.1 percentage points, from 4.3 in Q1 2026 and 5.2 a year earlier, based on a survey of 200 business owners and senior executives conducted between mid-February and early March. Business optimism has softened for a second consecutive quarter as companies adopt a more cautious stance amid geopolitical uncertainty and increasing margin pressure from moderating selling prices and new orders. The conflict has also increased expectations of tighter monetary policy in April, with one forecast projecting core inflation at 1.3% in Q2 and 1.8% in the second half of 2026. Despite the overall decline, all six survey indicators—sales volume, net profit, selling prices, new orders, inventory and employment—remained in expansionary territory. Sector results were mixed, with wholesale trade sentiment improving sharply, including new orders rising to 26.7 percentage points, while the financial sector recorded 21.4 percentage points for both sales volume and net profit supported by stronger new orders and employment. Sentiment in transportation and services moderated, with services indicators for sales, profit and prices easing to 2.3 percentage points and new orders falling to zero. Manufacturing sentiment improved moderately, with sales, profit and employment indicators rising to 7.4 percentage points, while construction faced the weakest outlook, with selling price expectations falling into contraction at −7.7 percentage points alongside stagnant new orders and employment.

VIET NAM
Vietnamese authorities warn of potential jet fuel shortages from April
(16 March 2026) Vietnamese authorities have warned of potential jet fuel shortages from April following export halts by China and Thailand linked to the Iran conflict, with the Civil Aviation Authority of Vietnam stating risks could extend into subsequent months. Vietnam imports over two-thirds of its jet fuel, with 60% sourced from China and Thailand, while supplies from Singapore have also declined. Importers Petrolimex and Skypec indicated they can only guarantee supply through March and recommended restricting operations to essential domestic routes if disruptions persist. Authorities have instructed airlines to review flight plans and airport operators to prepare additional parking capacity for grounded aircraft. Export restrictions include China’s halt on new export agreements and a full ban on refined fuel exports from 11 March, alongside Thailand’s ban on refined fuel exports from 6 March. Viet Nam has initiated diplomatic engagement. Alternative sourcing options identified include South Korea, Japan, Brunei Darussalam, and India, though authorities assess it is difficult to secure new suppliers under current conditions. Domestic refineries are unable to significantly increase jet fuel output due to competing production demands. Importers also warned of approaching credit limits due to higher prices and requested more flexible bank financing. The disruption raises risks of reduced flight operations and broader cost pressures across Vietnam’s aviation sector.

MALAYSIA
Malaysia attracts increased investor interest amidst Iran conflict
(17 March 2026) Malaysia has attracted increased investor interest amid the Iran conflict, supported by political stability, a current account surplus and its position as a net energy exporter, which has strengthened resilience to rising global energy prices. The stock benchmark has outperformed regional peers in March, with foreign equity outflows limited to about USD 80 million and the FTSE Bursa Malaysia KLCI Index declining only 1.2%, while the ringgit has maintained gains against the US dollar. Higher crude prices are expected to support fiscal revenues, with petroleum income projected at 12.5% of government revenue in 2026. Prime Minister Anwar Ibrahim has implemented policies to expand semiconductor manufacturing, renewable energy and data centre capacity, contributing to record foreign direct investment, trade and tourism, all of which supports growth forecasts for 2026. Malaysia’s role in semiconductor assembly, testing and packaging, alongside plans to move into chip design, and its emergence as a regional data centre hub contributed an estimated MYR 14.1 billion to the economy in 2025. Investments in Johor and a planned special economic zone with Singapore are expected to sustain momentum. Compared with regional peers, Indonesia faces rating pressure, Thailand is constrained by high household debt and weak growth, and the Philippines is affected by a corruption scandal, reinforcing Malaysia’s relative attractiveness. However, risks include potential emerging market outflows if the conflict persists, increased subsidy costs from elevated oil prices affecting fiscal consolidation, and domestic governance concerns. Overall, Malaysia is positioned as both a defensive and growth market, benefiting from energy exports and structural investment trends.

MALAYSIA
Malaysia will not introduce new fiscal measures despite ongoing Middle East conflict
(16 March 2026) Malaysia will not introduce new fiscal measures despite heightened Middle East tensions affecting global energy markets. Malaysia’s Finance Minister II stated the government’s priority is maintaining stable energy and food supplies, with further policy responses dependent on whether the regional situation deteriorates further. Global oil markets have been disrupted after military attacks by the United States and Israel on Iran, followed by Tehran’s closure of the Strait of Hormuz, which carries about 20% of global oil supply, pushing Brent crude above USD 100 per barrel. Prime Minister Anwar Ibrahim stated Malaysia’s petroleum product supply is secure until at least May 2026 and confirmed the government will maintain the RON95 petrol subsidised price at MYR 1.99 per litre. The government will continue targeted subsidy programmes under Budi Madani, including Budi Individu, Budi Agri-Komoditi and Budi 95. Amir Hamzah said petrol supply remains stable and that energy companies have incorporated the Hari Raya Aidilfitri seasonal demand increase into supply planning. He added that national oil company Petroliam Nasional Bhd and other energy firms are increasing stock levels to support domestic demand and maintain supply security.

RCEP Monitor

NEW ZEALAND
Inflation projected to exceed Reserve Bank of New Zealand’s 1-3% target band
(16 March 2026) New Zealand inflation is projected to exceed the Reserve Bank of New Zealand 1–3% target band for much of 2026 as higher fuel costs linked to the war involving Iran increase price pressures, according to forecasts from major domestic lenders. Bank of New Zealand expects inflation to rise to 3.6% in the second quarter before easing to 2.9% by year-end. ASB Bank forecasts a 3.3% peak in the second quarter and 3% by the end of the year, while Westpac projects 3.2% inflation in the third quarter. These projections diverge from the central bank’s earlier estimate that inflation would decline to 2.3% by the end of 2026 from 3.1% at the end of 2025. Financial markets now price a 30% probability of an interest-rate increase in May and anticipate 75 basis points of cumulative tightening by year-end, which would lift the Official Cash Rate to 3%. Near-term inflation pressures are likely to be sustained and could prompt earlier monetary tightening if oil supply shocks influence price and wage-setting behaviour. New Zealand’s Finance Minister said Treasury officials outlined a worst-case scenario in which inflation could reach 3.7% if the conflict persists through much of 2026, fuel prices rise further, and imported inflation increases.

AUSTRALIA, EUROPEAN UNION
Australia and EU signal progress in negotiations over free trade agreement
(17 March 2026) Australia and the European Union have signalled progress towards a free trade agreement following a call between Australia’s Trade Minister and the EU’s Trade Commissioner, with both sides indicating negotiations are advancing. Australia’s Trade Minister stated confidence in reaching a deal aligned with national interests, while the EU’s Trade Commissioner confirmed talks are moving in the right direction and remain focused on a mutually beneficial outcome. The negotiations, which collapsed in 2023, have centred on disagreements over agricultural access, with Australia seeking increased quotas for lamb and beef exports and the EU pushing for improved access to critical minerals and reduced tariffs on manufactured goods. President of the European Commission Ursula von der Leyen reportedly told EU leaders that discussions are in the “final stretch”, with potential plans to travel to Australia to sign an agreement, though details remain unconfirmed. The renewed push reflects broader EU efforts to strengthen trade positioning amid global tensions and reduce reliance on the United States and China.

AUSTRALIA
Reserve Bank of Australia increases cash rate by 25 basis points to 4.10%
(17 March 2026) The Reserve Bank of Australia increased its cash rate by 25 basis points to 4.10%, citing sharply higher fuel prices driven by the US-Israel conflict with Iran. Global oil prices have risen more than 40% since strikes began on 28 February, with disruptions linked to restricted access to the Strait of Hormuz, through which around one-fifth of global oil and gas flows. The RBA indicated sustained higher fuel prices will add to inflationary pressures and may reduce economic growth domestically and across major trading partners. The rate increase positions Australia among the first major economies to tighten monetary policy in response to the conflict-driven energy shock. Economists have warned a prolonged conflict could trigger an inflation surge comparable to that following Russia’s 2022 invasion of Ukraine. The RBA also highlighted risks from prolonged uncertainty affecting global demand conditions. Australia’s reliance on imported fuel from Asia increases its exposure to elevated energy costs, reinforcing the inflationary impact.