ASEAN “Twin Deficit” Pressure Diverges: Oil Prices Expose Vulnerability, AI Trade Supports Singapore and Malaysia

Overview

The report evaluates the impact of post-Middle East conflict energy prices, AI-related trade, and fiscal subsidies on six major ASEAN economies within the framework of “current account deficit + fiscal deficit” twin deficits. HSBC believes that although oil prices have retreated from their highs, the persistence of the energy shock may still affect fundamentals through import bills, inflation, subsidy spending, and exchange rate pressure; meanwhile, AI-related semiconductor and electronics trade is providing tailwinds to Singapore and Malaysia, further widening divergence in external account performance across the region.

Core views

The core view is that Singapore is the most resilient economy in the region, with a large current account surplus and fiscal surplus; Malaysia benefits from exports of electrical and electronic products and potential Petronas dividends, though the subsidy gap still needs to be addressed; Vietnam and Thailand are seeing their current account surpluses dragged down by trade deficits, while Thailand also faces high debt and fiscal constraints; Indonesia and the Philippines remain in the traditional twin-deficit pattern, with market pressure more evident in Indonesia, while the Philippines may gain some cushion from slower infrastructure spending and rising savings.

Analysis framework

The report first uses current account and fiscal balances to identify ASEAN economies’ vulnerability to external shocks, then combines 1Q26 data, high-frequency trade data from April to May, energy subsidy schemes, public debt, and policy adjustments to compare each country’s relative position under oil price shocks and the AI trade upswing.

Methodology notes

• Macro External VulnerabilityTwin Deficit Framework

  Economies with both current account deficits and fiscal deficits are more vulnerable to shocks from oil prices, exchange rates, and capital flows.

  The report uses this framework to distinguish the traditional twin-deficit pressure of Indonesia and the Philippines, Singapore’s twin-surplus advantage, and the intermediate position of Malaysia, Vietnam, and Thailand between fiscal deficits and small current account surpluses.

• Balance of Payments AnalysisCurrent Account and High-Frequency Trade Data

  Changes in the goods trade balance can significantly affect the direction of the current account, especially when 1Q26 data are still incomplete and high-frequency trade data provide leading signals.

  The report compares AI-related electronics exports, energy imports, capital goods imports, and electronic component imports to assess which economies benefit from AI trade and which face current account pressure due to expanding imports.

• Fiscal SustainabilityFiscal Deficit, Public Debt, and Energy Subsidy Burden

  Energy subsidies can temporarily cushion inflation and livelihood pressure, but they increase fiscal deficits, debt, and market concern over policy discipline.

  The report compares subsidy costs, debt constraints, and policy adjustments across Singapore, Malaysia, Thailand, and Indonesia, emphasizing differences in fiscal space and market reaction.

Asset mapping & comparison

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

• Singapore Macro Assets

  Beneficiary of AI trade and the region’s fiscal safety cushion

  Strengths

  Largest current account surplus, expected to reach 19.1% of GDP in 2026; fiscal balance is still expected to show a 1.0% of GDP surplus, with subsidy measures costing only about 0.1% of GDP.

  Weaknesses

  Growth and trade performance remain affected by the global electronics cycle, AI demand, and external shocks.

  Comparison

  Compared with other ASEAN economies, Singapore enjoys both current account and fiscal advantages.

  Risks

  If AI trade cools or the energy shock pushes inflation higher again, external tailwinds may weaken.

• Malaysia Macro Assets

  Beneficiary of AI-related electronics trade while facing a subsidy gap

  Strengths

  Improving E&E trade, widening current account surplus, and potential additional Petronas dividends providing fiscal cushioning.

  Weaknesses

  The energy subsidy bill is rising sharply, while the fiscal gap and political resistance to subsidy rationalization have not been eliminated.

  Comparison

  Fiscal risk is lower than for some peers, but it is not as resilient as Singapore.

  Risks

  If oil prices stay high or subsidy reform is delayed, the fiscal deficit may slip modestly beyond the budget target.

• Vietnam Macro Assets

  Import-intensive manufacturing narrows the current account surplus

  Strengths

  Still has relatively high growth and a large current account surplus base within the region; a later export ramp-up could repair the trade balance.

  Weaknesses

  Persistent trade deficits since 2026, with imports of electronic components and intermediate goods pushing up the import bill.

  Comparison

  Compared with Singapore and Malaysia, it has not yet benefited equally from AI trade tailwinds.

  Risks

  If subsequent exports fail to catch up quickly, Vietnam’s 2026 current account surplus may narrow significantly.

• Thailand Macro Assets

  Pressure from energy imports, insufficient tourism recovery, and fiscal constraints

  Strengths

  The services deficit is not as deep as in 2022-2023, and policy is attempting to stimulate the economy through consumption and energy transition.

  Weaknesses

  The current account surplus is expected to fall from 2.8% of GDP in 2025 to 0.5% in 2026, the fiscal deficit is expected to widen to 5.8% of GDP, and public debt is approaching the 70% ceiling.

  Comparison

  Fiscal pressure and debt constraints are more prominent than in Malaysia.

  Risks

  Oil prices, tourism competition, judicial challenges to the decree, and debate over the debt ceiling may intensify market concerns.

• Indonesia Macro Assets

  A traditional twin-deficit economy, with markets more sensitive to fiscal discipline

  Strengths

  The government has adjusted the free meal program and raised prices for some non-subsidized gasoline, attempting to control fiscal pressure.

  Weaknesses

  The current account deficit is expected to widen to -1.1% of GDP, the fiscal deficit is expected to reach the 3% of GDP ceiling, and tax revenue as a share of GDP remains the lowest in the region.

  Comparison

  Compared with Malaysia and Thailand, markets react more strongly to Indonesia’s assets and fiscal risk.

  Risks

  If revenue reform is insufficient, subsidy spending rises, or weak investment continues, the currency and asset prices may remain under pressure.

• Philippines Macro Assets

  Twin deficits persist, but slower infrastructure spending and improved savings provide a buffer

  Strengths

  A diversified overseas worker base and a strong US dollar may partly support remittances, while the pause in infrastructure spending turns the savings-investment gap positive.

  Weaknesses

  The current account deficit is expected to remain at -3.3% of GDP, remittance growth has fallen to a three-year low, and the fiscal deficit remains high.

  Comparison

  Like Indonesia, it is a traditional twin-deficit economy, but the report believes current account pressure may be partly offset by rising savings.

  Risks

  Spillover from Middle East conflict, slower remittances, and rising inflation may weaken the buffer effect.

Key data

• 2026 Current Account ForecastSingapore 19.1% of GDP, Malaysia 2.1%, Vietnam 2.2%, Thailand 0.5%, Indonesia -1.1%, Philippines -3.3%This shows Singapore far ahead, while Indonesia and the Philippines remain in current account deficit.
• 2026 Fiscal Balance ForecastSingapore 1.0% of GDP, Malaysia -3.5%, Vietnam -4.4%, Thailand -5.8%, Indonesia -3.0%, Philippines -4.4%Except for Singapore, major ASEAN economies generally run fiscal deficits.
• Singapore AI Trade MomentumElectronics non-oil domestic exports rose 80% year-on-year on a 3-month moving average basisThe report believes Singapore has regional advantages in areas such as memory chips, processor chips, and amplifier chips.
• Malaysia Electrical and Electronics TradeNet E&E trade balance rose 44% year-on-year versus the 2025 averageAI-related electronics trade supports a wider current account surplus in Malaysia.
• Vietnam Trade GapAverage monthly trade deficit of about USD2.5bn since 2026, versus an average monthly surplus of USD1.7bn in 2025Electronic component imports contributed about 60%, reflecting the import-intensive nature of manufacturing.
• Thailand Fiscal and Debt ConstraintsPublic debt is 66.7% of GDP, close to the 70% voluntary ceiling; the emergency loan decree totals THB400bn, about 2.1% of GDPThailand has limited fiscal space, and the relevant decree faces a challenge in the Constitutional Court.
• Malaysia Subsidy PressureThe subsidy bill may rise from the budgeted MYR15bn to MYR58.4bn, leaving a remaining fiscal gap of about MYR23.4bnAdditional Petronas dividends may provide fiscal cushioning, but subsidy rationalization remains politically difficult.
• Indonesia Fiscal AdjustmentAdjustments to the free meal program are expected to save IDR70trn, about 0.3% of GDP; the 2026 fiscal deficit is expected to reach 3% of GDP without breaching the ceilingPolicy recalibration helps preserve the deficit ceiling, but room for fiscal stimulus is very limited.

Impact & implications

In terms of investment implications, ASEAN assets should not be judged simply as a regional whole, but rather differentiated by current account position, fiscal space, and policy credibility. Singapore and Malaysia relatively benefit from AI trade and fiscal buffers; Thailand, Indonesia, and the Philippines are more exposed to energy prices, fiscal subsidies, and exchange rate pressure; Vietnam’s short-term trade deficit needs monitoring to assess whether subsequent exports can materialize and restore the current account surplus.

Risks

• A renewed rise in Middle East conflict or oil prices could drive import bills, inflation, and subsidy spending higher again.
• ASEAN currencies may continue to face depreciation pressure from US dollar strength and worsening external accounts.
• Energy subsidies and consumption stimulus may widen fiscal deficits and trigger market concerns over debt sustainability.
• If AI-related semiconductor and electronics trade cools, the current account tailwinds for Singapore and Malaysia may weaken.
• A weaker-than-expected tourism recovery in Thailand, judicial challenges to the decree, and debate over the debt ceiling may weigh on policy effectiveness.
• The gap between Indonesia’s low tax revenue and rising permanent spending may prolong structural fiscal pressure.

What to watch

• Brent oil prices and the further development of the Middle East conflict, and whether energy prices are enough to reverse the inflation shock.
• Whether AI-related electronics exports, semiconductor trade, and goods surpluses in Singapore and Malaysia can be sustained.
• Whether subsequent exports in Vietnam and Thailand can catch up with import expansion, especially changes in electronic component and energy imports.
• How Malaysia will close its subsidy gap, and whether it will rely on additional Petronas dividends or further subsidy reform.
• The Thai Constitutional Court’s ruling on the emergency loan decree, and discussions related to the public debt ceiling.
• Whether Indonesia can maintain the 3% fiscal deficit ceiling, as well as progress in revenue reform and subsidy spending.
• Whether remittance growth, infrastructure spending pace, and the savings-investment gap in the Philippines continue to improve.