Summary of Key Points
The economic growth forecast for the ASEAN+3 region (10 ASEAN countries plus China, Japan, and South Korea) in 2026 has been raised to 4.1% from 4.0%, driven mainly by AI-related semiconductor exports, strong domestic demand (consumption and investment), and improving commodity prices. However, the future still poses risks such as fluctuations in technology demand, escalating conflicts in the Middle East, and protectionism, which could lead to a significant slowdown in growth and a rebound in inflation.
The Three Main Drivers Behind the Growth Upgrade
The upward revision of the economic outlook is not unfounded; it is supported by three solid factors:
1. Stable Domestic Demand: Residents are more willing to spend due to easier job prospects and increasing incomes, especially in ASEAN countries. Enterprises are also increasing investment in advanced manufacturing (such as chip production) and the information technology sector, putting money where it matters most.
2. Surging AI-Related Exports: There is a surge in global demand for chips and memory products used in AI applications, with this region being a major producer, providing strong export momentum.
3. Commodities Not as Bad as Expected: Concerns about disruptions in energy and raw material supply were milder than anticipated, and the manufacturing sector continues to expand without hindrance.
AI and Semiconductors as Key Drivers of Exports
The growth in exports is largely driven by AI-related products:
- Regional export growth nearly reached 20% in the first quarter, with AI-related products accounting for two-thirds of the increase (such as chips and memory).
- Global semiconductor sales almost doubled in the first five months of this year due to AI companies' aggressive purchases of memory (resulting in high prices due to limited supply).
- ASEAN+3 accounts for nearly half of global AI-related exports, and semiconductor sales are expected to grow even faster in 2025. In short, the global demand for AI products has benefited this region significantly.
Inflation Has cooled Down, but Hidden Concerns Remain
Overall inflation has dropped from 1.8% to 1.6%, but there is still pressure:
- Reduced Pressure on Crude Oil: The resumption of oil shipments through the Strait of Hormuz has lowered oil prices, making gasoline and diesel less expensive.
- Natural Gas Remains Costly: Natural gas prices are 40% higher than before the conflict, increasing the cost of fertilizers and affecting agriculture.
- Food Prices May Rise: Food prices, such as rice, have begun to increase due to poor weather (e.g., droughts), transportation costs, and rising raw material prices.
The Biggest Challenges Ahead: Technology Demand and Middle East Conflicts
AMRO warns that the regional economy's vulnerability lies in two areas:
1. If Technology Demand Slows: If global AI investment returns to 2024 levels, growth could drop to 2.5% in 2027 (the lowest since the Asian financial crisis, excluding the pandemic).
2. Escalating Middle East Conflicts: If oil shipments through the Strait of Hormuz are disrupted again and oil prices rise to $90-$100 per barrel, growth could fall to 2.8% and inflation could soar to 4.6% (the highest since the global financial crisis).
Other risks include protectionism (US tariffs and export controls that could disrupt supply chains) and volatility in financial markets (high stock valuations and unstable exchange rates).
How Should Policy Makers Respond?
AMRO recommends flexible policies that take into account both changes in the AI cycle (e.g., adjusting strategies if AI demand declines) and the impact of Middle East conflicts. Macroeconomic policies should also be prudent to prevent financial market issues. In short, policymakers need to stay vigilant and prepared to address potential risks.
This report indicates that ASEAN+3 is doing well thanks to AI and domestic demand, but it cannot rely on a single factor for its success. It must be cautious of external risks that could undermine economic stability. Ordinary people can also see the implications: if AI continues to thrive, the region's electronics and semiconductor industries will benefit; however, conflicts or protectionism could lead to price increases and require more frugality.