By Damien Dujacquier, John Low and David Born

ASEAN is not only one of the world's most trade-dependent economic regions; it is also among the most resilient. So far, the region has weathered geopolitical turbulence remarkably well. Judged purely by the macroeconomic indicators, ASEAN's economies are in strong shape. The more important question, however, is whether they can sustain the positive trajectory of recent years and decades as a new set of challenges emerges.

The region's strong foundations are evident in the underlying economic data. ASEAN's share of global trade has risen steadily for years and is projected to reach 12% by 2050. The region has long since become a key node in global supply chains and is now also benefiting from the reshaping of global trade flows. One sign of this is its rising share of global inward FDI, which currently stands at around 15%.

These trends help explain how Southeast Asian economies have consistently outpaced global economic growth over the past two and a half decades. There is little reason to expect this momentum to fade in the near term.

Another structural strength should not be overlooked: ASEAN's workforce. With the exception of Thailand, the working age population in ASEAN countries is significantly younger, on average, than that of the major economic blocs, the US and China. At a time when demographic pressures are intensifying across the global economy, that is no small asset.

The same applies to labor costs. Compared with more mature markets, countries such as Malaysia, Thailand, Vietnam, and Indonesia offer significantly lower production costs, making the region increasingly attractive as companies rethink their global manufacturing footprints.

ASEAN's favorable demographics and rapid economic growth are increasingly reflected in a growing middle class, feeding through into increased consumption. Across ASEAN economies, private consumption is expected to grow by an average of 6.4% a year between 2021 and 2031 – well ahead of more saturated markets such as the US (4.9%), the EU-27 (4.3%), and even China (5.0%). This makes the region a growth market for consumer goods and services.

But economies across ASEAN face a new set of challenges, particularly since the US and China have shifted toward more aggressive mercantilism. ASEAN-based manufacturers will need to move beyond being final-assembly hubs and develop into integrated production centers with meaningful local content. As the tariff gap with China narrows, the viability of the China+1 strategy is also coming into question.

One metric will be particularly important to watch: the ratio of intermediate inputs to finished goods in ASEAN's imports from China. Ideally, the region will be able to continue to use Chinese intermediate goods and capital equipment to support higher-value manufacturing and export growth, as it has done so far.

Energy dependence, however, remains a significant constraint. Across ASEAN, refined petroleum products consistently account for 8% to 19% of total merchandise imports. With domestic refining capacity falling short of demand, headline CPI remains highly exposed to swings in global crude prices. That vulnerability has become particularly apparent since the blockade of the Strait of Hormuz – and could increasingly weigh on the region's competitiveness.

Fertilizer dependence adds another layer of risk. Between 70% and 90% of nitrogen, phosphate, and potash fertilizers, and 60% to 80% of active crop chemicals and pesticides used across Southeast Asia, are sourced from China, the Gulf, Russia, and Western markets.

On balance, the outlook remains distinctly positive. ASEAN is set to remain a growth market for the foreseeable future, not least as a manufacturing base. For global companies, continuing to treat the region as an afterthought would mean leaving significant potential on the table. In our view, this points to four priorities:

1. Turn China+1 into an ASEAN growth platform
   ASEAN has outgrown its role as a hedge. Treat it as a second engine, integrating manufacturing, R&D, procurement, and sales.
2. Build local ecosystems
   Suppliers and skills do not emerge by themselves. Invest in supplier upgrading and workforce training to build the capabilities you will depend on.
3. Localize for ASEAN consumers
   There is no single ASEAN consumer. Tailor products, pricing, and channels to each market, with local partners close to the customer.
4. Build resilience against volatility
   Currency swings and tight credit are structural risks. Diversify financing, manage treasury actively, and build supply chain redundancy.