South-East Asia to Overtake Japan's Economy by 2025

South-east Asia's economy is set to overtake Japan's by 2025, according to new projections from Singapore's United Overseas Bank (UOB).

The bank's economists predict next year's establishment of the Association of Southeast Asian Nations (ASEAN) economic community, and China's increasing economic prominence, will be significant drivers for the region's growth, boosting regional trade links.

Domestic factors, such as population growth and the rise of the middle class across south-east Asia, will also bolster the region's economic performance.

ASEAN includes Singapore, Indonesia, Thailand, the Philippines, Vietnam, Myanmar, Malaysia, Cambodia, Laos and Brunei, and has a combined nominal GDP of $2.4tn (£1.48tn, €1.89tn).

Japan, which is currently the world's third largest economy, has a nominal GDP of $4.9tn.

The UOB said ASEAN only needs to grow at two-thirds of the pace of its expansion between 2001 and 2013 in order for it to overtake Japan by 2025.

"We believe that these projections for south-east Asia are achievable going by recent developments in the region, including the opening up of Myanmar to the international community, the presidential election in Indonesia and the return of stability in Thailand after the military coup," the bank said.

"We expect that pro-business policies will continue to be pursued by various member states within ASEAN, especially within the guiding framework of AEC starting from 2015, that will help to promote free flow of goods, services, investment and skilled labour, as well as freer flow of capital, all of which would serve to make the region into an enlarged production base and a consumer market."

This week, the International Monetary Fund announced that Mongolia has taken steps to strengthen its economy but still requires a number of fiscal and monetary reforms in order to keep inflation under control and boost growth. The country's GDP growth slowed this year, while inflation rose sharply.