Employment growth across Asia and the Pacific is losing momentum, with geopolitical tensions, weak trade and a slowing Chinese recovery putting a dampener on job prospects in 2025. The slowdown underscores a key challenge for business and policy makers alike: how to safeguard employment and future-proof their workforce against a perfect storm of economic, technological and climate pressures.

This is the view from a new International Labour Organization (ILO) study – the Asia-Pacific edition of its World Employment and Social Outlook 2025 May Update – which cuts its employment growth forecast from 1.9% to 1.7%. That translates into 34 million new jobs across the region in 2025, instead of the previously projected 38 million.

The change may appear small on the surface, but it signals a dramatic shift in momentum – reflecting weakening conditions in a region that has previously led the world in employment growth. Nonetheless, the ILO highlights that Asia Pacific’s 1.7% expansion still tops Africa (1.6%) and the Americas (1.2%) and far surpasses the growth of the Arab States (1.3%) and Europe and Central Asia (0.6%).

Vulnerability to trade disruptions

The slowdown reflects growing vulnerability to upheavals in global trade. The ILO reports that nearly 3% of total employment, or more than 55 million jobs, is directly or indirectly tied to final demand from the US. More importantly, nearly 9% of all manufacturing jobs (27 million) rely on US consumption.

This dependency is pronounced in Southeast Asia. The region’s manufacturing employment is especially exposed – nearly 14% is tied to US demand – with sectors like textiles and garments particularly vulnerable.

East Asia has the highest absolute number of exposed workers – nearly 15 million – reflecting its deep integration into US-centric supply chains.

Meanwhile, South Asia and the Pacific are less vulnerable, with 6.9% and 5.4% of their manufacturing employment, respectively, depending on US final demand – although the sectors most affected, such as textiles, remain key sources of employment in those subregions.

Rising informality adds to policy challenge

Slow employment growth comes alongside a persistent challenge for policy makers across the region: a large and hard-to-tackle informal sector. The ILO reports that nearly 1.3 billion workers, or 66% of total employment, are in informal employment, often without a proper employment contract or social protection.

This varies widely across subregions. South Asia has the highest rate at nearly 87%, while Pacific islands come in at 35%. East Asia stands at 27%.

Efforts to formalise employment have made progress over the past two decades, but this momentum has faltered in the face of COVID and now a challenging economic climate. Without strong policy intervention – from education and training initiatives to incentives for businesses to formalise – this large pool of workers may become stranded on the margins of the future workforce.

Widening skills gap amid climate, digital and geopolitical pressures

Slow employment growth also underscores a growing policy challenge: matching the skills of workers to the jobs of the future. According to the World Economic Forum, 60% of businesses fear skills gaps will undermine their ability to respond to changing conditions.

Some sectors will need an infusion of climate-related skills, reflecting the vulnerability of many Asia Pacific businesses to climate impacts. Rising seas, dramatic temperature fluctuations and disrupted agricultural cycles will affect sectors from tourism to food production. Climate mitigation and adaptation skills, ranging from green energy technologies to climate-risk management, will become a key asset for companies in Southeast Asia.

Meanwhile, technology is reshaping how companies operate. The WEF reports that 43% of skills currently required by workers will be disrupted by 2030 – higher than the 39% global average. Artificial Intelligence, big data and cybersecurity will become particularly important; nearly 92% of Southeast Asian businesses expect strong growth in cybersecurity roles by 2030, while 83% say adaptability and resilience will be key human skills alongside these technical capabilities.

This signals a necessary overhaul of workplace tasks. Currently, human workers perform 41% of tasks and technology performs 27%. By 2030, this is expected to reverse: technology will perform 37% and humans 31%. The rest will be a blend of human-machine collaboration.

Policy priorities for businesses and governments

In this context, policy makers and businesses alike face tough choices. The ILO advocates strengthening social protection schemes to absorb future shocks and helping workers move into new roles through reskilling and education. Small and medium enterprises – which make up the backbone of many Southeast Asian economies – need support to connect to growing sectors and markets.

Meanwhile, businesses must become more adaptable and forward-thinking if they are to flourish in a challenging climate. That means securing the skills pipeline, whether through education, training or flexible employment policies, and designing roles and workplace structures to absorb disruption and leverage technology’s potential.

Some companies are already thinking strategically about these transitions. The WEF highlights policy responses such as extending childcare to help more women into the workforce, delaying retirement ages, making employment contracts more flexible and simplifying immigration procedures. All these measures, taken together, could help ease skills bottlenecks and match workers to opportunities more effectively.

Outlook for Southeast Asia

Southeast Asia finds itself at a crossroads. The region’s vulnerability to US-China tensions, slowing growth, climate pressures and technology upheavals all pose a challenge – but this moment also brings opportunity.

To navigate these upheavals, policy makers and businesses will need to be ambitious. The policy tool kit should combine education and training initiatives, incentives to move businesses into the formal sector and the strengthening of social protection nets. That means protecting workers against upheavals while helping companies find, and retain, the skills they need.

Meanwhile, companies must become more adaptable by investing in developing their workforce’s skills, strengthening internal training and designing roles to match future needs. Tackling cybersecurity, climate adaptation and technology skills gaps will be key to staying competitive in a rapidly changing market.

Economic pressures and policy choices

Policy makers will need to account for the wider economic context – weak growth in China, US-China tensions and growing geoeconomic fragmentation – alongside the structural pressures within their own borders.

Rising US tariffs, for example, have already dampened growth projections for developing Asia. Nonetheless, strong domestic demand and healthy growth in sectors such as electronics are expected to help absorb some of these shocks.

The Asian Development Bank forecasts developing Asia and the Pacific will grow at 4.9% in 2025 and 4.7% in 2026, supported by strong internal consumption and a gradual easing of monetary policy. Inflation is expected to ease to 2.3% in 2025 and 2.2% in 2026 – a reflection of lower commodity prices – allowing central banks greater flexibility to cut rates and foster growth.

For businesses and policy makers in Southeast Asia, this combination of internal momentum and external pressures underscores the need for adaptability.

Education, skills training and policy reforms will be key to making sure employment growth, however slow, converts into broadly shared prosperity.