Southeast Asia will face a slowdown in its economic growth at least over the next one year. In 2008, the region's economic growth is expected to moderate around 5.4 per cent (Asian Development Outlook (ADO) 2008), sliding further in the first half of 2009. This is significantly slower than the 6.5 per cent growth achieved in 2007. Going into 2010, the economies are predicted to experience a modest growth recovery. Depending on how long and how severe the global financial crisis will be, there is downside risks to the forecast estimates.

The growth prospect for Southeast Asia is especially deteriorating because the region still depends on the G3 economies (United States, Euro-zone and Japan) for its economic business cycle. The U.S. economy grew by almost 2 per cent in the first half of 2008, with the downside risk steadily increasing for the next six months. The negative spillover effect from the already strained financial market is pressing the risk factor, worsening the growth expectation. This is likely to downgrade the growth for Europe and Japan going into 2009 (see Table 1). Slower exports to the G3 economies will lead to gradual decrease in domestic demand and hence lower profit margins and investment in the Asian private sector. The fiscal spending may ameliorate some of the slowdown but it would not be enough to alter the entire growth dynamics for the region. The growth would also hinge on the quick resolution of the ongoing global financial stress.