AMRO lifts Asean+3 growth forecast as AI demand boosts regional resilience

The Asean+3 region's economic growth forecast has been revised upward to 4.1 per cent for 2026 from the previous projection of 4.0 per cent, underpinned by resilient domestic demand, strong technology exports and sustained momentum in the artificial intelligence (AI) sector.

The Asean+3 Macroeconomic Research Office (AMRO), in its July 2026 Quarterly Update of the Asean+3 Regional Economic Outlook (AREO) released yesterday, said growth is expected to ease slightly to 4.0 per cent in 2027.

Headline inflation is now projected at 1.6 per cent in 2026, compared with the earlier forecast of 1.8 per cent, reflecting lower global commodity price assumptions.

AMRO said the region is on track to maintain solid growth in the first half of 2026, as robust AI-driven demand offsets headwinds from the prolonged Middle East conflict.

The upgraded outlook is supported by strong demand for semiconductors and other AI-related products, alongside a more favourable global commodity price environment.

Household spending has remained firm, supported by favourable labour market conditions and continued income growth, particularly in Asean economies, while investment has stayed resilient on the back of rising capital spending in advanced manufacturing and information and communication sectors.

Net exports have also continued to underpin growth, buoyed by strong semiconductor and electronics demand.

Meanwhile, disruptions to energy and industrial input supplies have proved less severe than initially feared, allowing manufacturing activity to continue expanding.

AMRO chief economist Dong He said the region had remained resilient, supported by firm domestic demand and its central role in global AI supply chains.

"The impact of the Middle East conflict has also been less severe than initially expected, although elevated energy and input costs continue to pose risks to inflation and industrial activity," he said during a virtual media briefing yesterday.

Inflationary pressures have remained broadly contained, with price increases largely concentrated in energy and transport, while core inflation has risen only modestly.

However, AMRO warned that food inflation could accelerate if higher production costs and adverse weather conditions are passed on to consumers.

Despite the stronger baseline outlook, the office cautioned that considerable uncertainties remain.

It said a renewed escalation of the Middle East conflict could drive up energy, shipping and food costs, while prolonged disruption to the Strait of Hormuz, with oil prices averaging between US$90 and US$100 per barrel through 2027, could slow regional growth to 2.8 per cent and push inflation to 4.6 per cent in 2027, the highest since the global financial crisis.

AMRO also identified the AI-driven technology cycle as a key downside risk.

AI-related products have accounted for more than two-thirds of the region's export growth over the past year, and a moderation in global technology investment could significantly weaken exports and business investment.

Under a scenario in which global technology investment slows to its 2024 pace, Asean+3 growth could ease to 3.7 per cent in 2026 and 2.5 per cent in 2027, marking the region's weakest expansion since the Asian Financial Crisis, excluding the pandemic years.

A disorderly correction in AI-related asset valuations could further amplify the slowdown through financial markets.

AMRO also warned that heightened volatility in global financial markets, driven by geopolitical tensions, elevated technology-sector valuations and uncertainty over the US monetary policy path, could trigger renewed capital flow volatility and tighten global financial conditions.

In addition, uncertainty over the replacement of the expired US global import surcharge, together with existing tariff measures, Section 301 investigations and the possible expansion of export controls and other non-tariff measures, could further disrupt regional supply chains, increase trade costs and dampen economic growth.

Dong He said the broad range of possible outcomes highlighted the need for policymakers to remain vigilant.

"Policymakers will need to respond flexibly to differing domestic conditions and rapidly evolving external risks, particularly the AI cycle and the Middle East conflict," he added.

Source: NST