AI seen fueling ASEAN+3 resilience

The robust demand for semiconductors and products related to artificial intelligence will remain the key growth driver for the East Asian and Southeast Asian regions, keeping their economies resilient even amid the economic fallout from an escalating Middle East conflict, a regional think tank said.

The regional GDP growth of the members of the Association of Southeast Asian Nations and three East Asian economies is expected to grow by 4.1 percent in 2026, while headline inflation is projected at 1.6 percent, the ASEAN+3 Macroeconomic Research Office said in its latest ASEAN+3 Regional Economic Outlook on July 27.

Growth in ASEAN is projected to ease to 4.8 percent in 2026, from 4.9 percent in 2025. The three East Asian economies — China, Japan, and South Korea — are expected to grow this year by 4.5 percent, 0.6 percent, and 3.1 percent, respectively.

According to AREO, ASEAN+3 export growth accelerated to almost 20 percent in the first quarter, thanks mostly to exports of AI-enabling products. Capacity constraints linked to AI infrastructure investment have boosted global semiconductor sales.

"The drag from the Middle East conflict has been more contained than we anticipated," Allen Ng, AMRO's lead economist, said during a webinar.

Ng said AI-related demand has been central to this year's economic performance of the ASEAN+3 and is one of the key factors that will shape the outlook ahead. This is because the region sits at the center of AI production globally and accounts for about half of global AI-related trade.

Ng said investment in data centers also contributed to the region's growth and that the United States' fresh round of tariffs on July 24 will not impact ASEAN+3's AI-related exports.

The Office of the US Trade Representative has announced tariffs ranging from 10 percent to 12.5 percent on goods from 60 economies, citing Section 301 of the Trade Act of 1974, which allows the US president to penalize countries found to have "failed to curb" forced labor in supply chains.

Ng said the new US tariff measures largely replaced the temporary 10 percent worldwide tariffs that expired at 12:01 am on July 24.

"This means that the immediate increase in trade costs is smaller than the headline rates," he said, adding that AMRO's preliminary estimate is that these tariffs would raise the region's effective tariff rates by less than a percentage point.

While the regional outlook is buoyant, AMRO noted in its report that this remains subject to "significant uncertainty" owing to the evolving Middle East conflict, the durability of the AI-driven technology cycle and changes in US trade policy.

He Dong, AMRO's chief economist, said the disruption in the Strait of Hormuz will result in continued volatility in oil prices.

"We haven't really seen a broad-based second-round effect on inflation. So the impact has been primarily on energy and transportation costs," He said.

He said that food price inflation might be a problem as the disruption in the Strait of Hormuz has boosted prices of fertilizers — a byproduct of petrochemicals.

AMRO estimated that a prolonged disruption to the Strait of Hormuz, with oil prices averaging $90 to $100 per barrel through 2027, could see ASEAN+3 growth fall to 2.8 percent and inflation rise to 4.6 percent in 2027 — the region's highest inflation since the Global Financial Crisis in 2008.

However, the impact would differ across different economies.

"It's quite a heterogeneous picture," He said. For example, Japan, South Korea, the Philippines, and Thailand are more exposed owing to high dependence on energy imports. Contrastingly, Malaysia and Indonesia, both commodity exporters, might benefit from stronger commodity prices.

"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 said.