Foreign direct investment (FDI) in Asia is expected to slow down as trade patterns adjust in response to evolving tariff policies, according to a recent report by ANZ Research.
The collective net FDI across India, Indonesia, Malaysia, the Philippines, South Korea, Taiwan, Thailand, and Vietnam fell to -0.1% of gross domestic product (GDP) in 2024, the lowest level recorded since 2012.
Net contributor economies — including Thailand, South Korea, and Taiwan — reported a combined FDI equivalent to -1.6% of GDP, falling 30 basis points below the long-term average. Meanwhile, net recipient economies such as India, Vietnam, Indonesia, the Philippines, and Malaysia experienced a more significant decline, with their combined net FDI dropping to 0.7% of GDP in 2024 compared to a historical average of 1.5%.
In the Philippines, the Bangko Sentral ng Pilipinas reported a 20% year-on-year decrease in net FDI to $731 million. Overall, the country’s FDI net inflows rose marginally by 0.1% to $8.93 billion in 2024, although inflows for December alone plunged 85.2% to $110 million.
According to ANZ Research, the slowdown reflects a broader, ongoing downtrend in inward FDI across the region, influenced by multiple structural factors rather than geopolitical tensions alone. A growing trend of outward FDI, even among economies with lower per capita incomes, has also contributed to the weaker net FDI numbers.
A key factor identified is the stagnation in the global trade-to-GDP ratio, which has constrained investment flows worldwide. New trade policies, including increased tariffs, have impacted global trade patterns and posed additional structural risks to FDI.
Several Southeast Asian economies have faced elevated tariff rates. Vietnam, Thailand, Indonesia, and Malaysia were among those subject to higher tariffs, while the Philippines faced a relatively lower tariff rate of 17%. Although reciprocal tariffs were temporarily suspended for 90 days, a baseline tariff rate of 10% remains in effect for many countries.
ANZ Research noted that FDI drivers are becoming more complex, with product sophistication, export potential, and service sector capabilities now outweighing traditional factors such as market size, labor costs, and regulatory quality. However, progress in these areas has been uneven across the region.
The latest Kearney FDI Confidence Index showed the Philippines falling three spots to 16th place among 25 emerging markets in terms of attractiveness for future FDI inflows over the next three years.
Looking ahead, manufacturing-related FDI is expected to favor industries producing advanced goods, with increasing demand but still limited global production capacity. Moreover, FDI composition is projected to continue shifting towards the services sector, which is rapidly expanding its share of global trade.
To navigate this changing environment, Asian economies are encouraged to strengthen ecosystems that support FDI attraction, focusing on research and development, intellectual property protection, labor skill development, and export infrastructure enhancements.
ANZ Research emphasized that while outward FDI is likely to continue growing — fueled by service sector expansion and risk management strategies — there remains significant opportunity for the region to attract new investment by fostering value-creating ecosystems.
Despite recent challenges, the report highlighted that Asia’s long-term investment prospects remain promising, provided that economies can adapt to the evolving global trade landscape and investor expectations.
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