UBS expects ASEAN growth to remain below trend in 2026, with rising inflation and interest-rate volatility risks

Overview

This is a presentation deck from UBS Global Research on the economic outlook for Asia and ASEAN in 2026-2027. The report focuses on ASEAN growth, inflation, monetary policy, fiscal space, trade and external demand, labor markets, and interest-rate market implications. The core conclusion is that growth divergence within Asia will widen in 2026, ASEAN overall growth may remain below the pre-pandemic trend, oil prices and Middle East conflict create a risk of inflation reacceleration, and economies such as Singapore, Indonesia, Malaysia, and Thailand will face differentiated pressures because of differences in external demand, energy dependence, fiscal buffers, and policy frameworks.

Core views

The report believes ASEAN-6 growth will slow to 4.5% in 2026E, below the 2015-2019 average of 4.7%. Inflation has started to edge up from low levels, and an oil shock could affect macro stability through energy subsidies, import costs, transportation, and manufacturing supply chains. On monetary policy, BNM is expected to remain on hold, MAS may continue to steepen the policy slope, and other central banks may still weigh one to two rate cuts amid the balance between inflation and further Fed easing. Singapore is highly sensitive to changes in external demand, but tech exports and strategic buffers provide some support; Indonesia and Thailand face greater fiscal and energy-shock pressures.

Analysis framework

The report adopts a regional macro outlook framework, combining GDP growth, inflation, real interest rates, mobility indicators, trade imports and exports, fiscal balances, energy subsidies, central-bank policy paths, and 10-year benchmark yields to compare the sensitivity of different ASEAN economies to external demand, oil prices, fiscal space, and policy responses.

Methodology notes

• Macroeconomic frameworkregional growth and inflation outlook

  Regional growth and inflation outlook

  The report compares trend growth, inflation trends, real interest rates, and policy-rate paths to assess the cyclical position and risk direction of ASEAN economies in 2026-2027.

• policymonetary and fiscal policy transmission

  Monetary and fiscal policy transmission

  The report analyzes how central-bank policy, government spending, energy subsidies, and changes in the tax base affect credit, demand, fiscal deficits, and market rates.

• riskoil shock sensitivity

  Oil shock sensitivity

  By examining energy-import dependence, fuel-cost pass-through, fiscal subsidy space, and exposure to tourism and manufacturing, the report identifies each economy's vulnerability to higher oil prices and Middle East conflict.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• ASEAN macro exposure

  Regional growth outlook

  Strengths

  Technology exports, investment activity, and some fiscal buffers can still support growth.

  Weaknesses

  Growth in 2026 is expected to remain below trend, and growth divergence across countries is widening.

  Comparison

  ASEAN-6 growth of 4.5% in 2026E is below the 2015-2019 average of 4.7%.

  Risks

  Oil shocks, weaker external demand, policy tightening, and an inflation rebound.

• Singapore macro and rates

  External-demand-sensitive economy and MAS policy path

  Strengths

  Strategic buffers, technology exports, and stronger price-signaling management enhance near-term resilience.

  Weaknesses

  It is most sensitive to changes in external demand, and the inflation trough may already be behind us.

  Comparison

  If growth broadly matches expectations, MAS may tighten the policy slope to around 1.5% p.a. in October.

  Risks

  Supply disruptions, higher inflation, interest-rate volatility, and weaker external demand.

• Indonesia fiscal and policy outlook

  Oil prices and fiscal subsidy pressure

  Strengths

  In theory, the fiscal deficit can still be kept close to 3%.

  Weaknesses

  Rising energy subsidies, a relatively weak revenue base, and rating concerns are increasing pressure for policy tightening.

  Comparison

  In an oil-price scenario of US$90–100/bbl, energy-related subsidies could rise by 0.8–1.1% of GDP.

  Risks

  Front-loaded fiscal adjustment, tighter financial conditions, and subsidies crowding out other spending.

• Thailand macro outlook

  Economy highly exposed to oil shocks

  Strengths

  Tourism and manufacturing supply chains remain important sources of growth.

  Weaknesses

  High dependence on imported energy, fast pass-through of fuel costs, and limited fiscal space.

  Comparison

  The report cuts Thailand's growth forecast for this year by 1ppt.

  Risks

  Higher oil prices, inflation pass-through, weaker tourism demand, and forced policy tightening.

• 10Y benchmark yields

  Interest-rate market risk

  Strengths

  If the conflict eases, yield pressure may fall.

  Weaknesses

  If the Iran-related conflict drags on, 10-year benchmark yields could rise further.

  Comparison

  The report specifically discusses the upside risk to 10Y benchmark yields under a prolonged-conflict scenario.

  Risks

  Geopolitics, inflation repricing, central-bank policy uncertainty, and market volatility.

Key data

• ASEAN-6 2026E GDP growth4.5%The report says ASEAN-6 GDP growth is expected to slow to 4.5% in 2026E.
• Average growth in 2015-20194.7%As a reference for the pre-pandemic trend, the report lists average growth of 4.7% in 2015-2019.
• Indonesia oil-price scenarioUS$90–100/bblIf average oil prices this year reach this range, energy-related subsidies could rise by 0.8–1.1% of GDP.
• Potential increase in Indonesia energy subsidies0.8–1.1% of GDPIn an oil-price-upside scenario, a fiscal deficit close to 3% may still require a sizable and front-loaded adjustment.
• Malaysia energy-related revenue2% of GDPBelow the 2024-25 average of 3% of GDP, and also below the 2019 peak of 5.5%.
• Potential MAS policy-slope level in Singaporearound 1.5% p.a.If growth broadly matches expectations and there are no major physical supply disruptions, MAS may tighten the policy slope again in October.
• Singapore office-use services mix57%FIG, legal, and technology services account for 57% of Singapore's office-use services sector.
• Thailand growth forecast adjustmentdowngrade by 1pptThe report says Thailand is more exposed to oil-price shocks, and growth for this year has been cut by 1ppt because fiscal space is limited.

Impact & implications

For investors, the report suggests that ASEAN macro trades should not be based on a simple assumption of synchronized recovery; instead, investors should distinguish between countries by external-demand sensitivity, energy exposure, and policy space. If oil shocks and Middle East conflict persist, inflation may rise, 10-year benchmark yields may move higher, and fiscal space may narrow. Singapore is more affected by external demand and the tech cycle but has a relatively sound policy framework, while Indonesia and Thailand require closer attention to energy subsidies, rating pressure, and the risk of fiscal tightening.

Risks

• Middle East conflict and higher oil prices could push inflation back up from low levels.
• Higher energy subsidies may crowd out other fiscal spending and intensify pressure for fiscal deficit adjustment.
• Weaker external demand may weigh on open economies such as Singapore.
• 10-year benchmark yields may rise further because of prolonged conflict and inflation risks.
• A relatively weak revenue base and rating concerns in some economies may trigger policy tightening driven by financial conditions.
• Multi-asset investing faces market, credit, interest-rate, and FX risks, and geopolitical and policy shocks may reduce asset returns.

What to watch

• Whether ASEAN-6 GDP growth in 2026 approaches the 4.5% forecast.
• Whether oil prices stay in the US$90–100/bbl range and how that affects energy subsidies.
• Whether MAS tightens the policy slope in April and October, and whether it gets close to 1.5% p.a.
• Whether BNM keeps policy unchanged throughout 2026 as expected.
• Whether further Fed easing opens additional rate-cut room for ASEAN central banks.
• Singapore's tech exports, office-use services employment, and inflation subcomponent trends.
• Indonesia's and Thailand's fiscal deficits, rating pressure, and signs of policy tightening.