Economic Outlook for Asia: Between Energy Risks and Chip Boom

The outlook for the Asia-Pacific region remains surprisingly positive. Although global crises are taking their toll on national economies, the region is showing strong resilience in 2026. And there are even some winners.

Asia Remains the Growth Engine of the Global Economy

Despite various crises, the Asia-Pacific region remains the world’s fastest-growing region, according to the International Monetary Fund (IMF). In 2026, 60 percent of global growth will once again be driven by Asian economies. Regional gross domestic product (GDP) is projected to grow by 4.4 percent in real terms in 2026. A moderate increase of 4.2 percent is expected for 2027. In its forecast, the IMF factored in a negative scenario involving a more severe resurgence of the Middle East war as appeared to materialize in July 2026.

However, the centers of growth have shifted: Growth of only about 4 percent is expected for China in the near future, while growth of 6.5 to even over 7 percent is forecast for India and Southeast Asian markets such as Vietnam. The drivers of growth vary from country to country. However, several overarching trends are evident:

• Industrialization and export-driven production are advancing
• The restructuring of value chains is creating new industrial clusters
• Artificial intelligence (AI) and digitalization are boosting exports and investment, particularly in the semiconductor and data center sectors
• Expansion of transportation and utility infrastructure in emerging markets
• Expansion of energy generation—particularly renewable energy and nuclear power—as well as power grids
• The rise of the middle class is boosting consumption, online services, and the gig economy

Geopolitical risks are dampening the outlook

Uncertainty surrounding the Strait of Hormuz and shipping routes through the Red Sea is likely to persist. GTAI has examined the implications. The most serious consequence is rising prices for oil and gas from the region. Asia is the largest consumer of these commodities. For example, 80 percent of liquefied natural gas (LNG) shipments from the Gulf go to the region. Economies that are heavily reliant on energy imports are particularly affected, including Taiwan, which imports all its energy resources. China is the world’s largest oil importer and, according to reports, accounted for 80 percent of Iranian oil imports. However, the country is significantly more resilient, as China has built up large reserves and diversified its supply structure, including pipelines from Russia.

In South Asia, by contrast, the situation is much more challenging—for example, in Bangladesh, which faces a strained fiscal situation and high debt. It is therefore not surprising that Bangladesh, along with the Philippines and India, is among the hardest-hit countries in Asia. But developed economies -  for example, Singapore and South Korea - are also suffering from a shortage of feedstocks for refineries. In addition, helium shortages are affecting the semiconductor industry. Fertilizer production is also being impacted. This, in turn, is affecting food prices, for example, in Indonesia and the Philippines. Governments are responding with aid programs, subsidies for gasoline and other energy sources, and export bans on scarce goods.

Higher inflation is on the horizon; the IMF expects it to reach around 2.6 percent for the Asia-Pacific region in 2026. Central banks find themselves in a difficult position here, as weak growth looms. Nevertheless, in South Korea, for example, key interest rates were raised in July 2026 for the first time in three years. Added to this are further regional conflicts, such as those in Kashmir or the South China Sea. Potential blockades of strategically important straits, such as the Strait of Malacca or the Taiwan Strait, could also destabilize the region in future.

Semiconductors and the reorientation of supply chains offer opportunities

The U.S. announcement of very high tariffs and import bans is unsettling Asian companies. At the same time, certain locations are benefiting from diversion effects and have been able to significantly increase their exports. Vietnam has now become a more important supplier to the U.S. than China. In addition, interest in alternative production locations is growing. Government investment incentive programs are capitalizing on this trend. The “Make in India” campaign in the world’s most populous country is attracting particular interest.

AI is a major driver of growth in 2026: Global investments in data centers and computing capacity for AI models are driving demand for chips and electronics from Asia. Semiconductor exports rose by about 163 percent in South Korea and by 96 percent in China in the first half of 2026. In Taiwan, exports of high-performance chips and data center equipment are driving double-digit GDP growth rates.

New Partners for Free Trade

On the other hand, because of the tense global economic situation and in addition to measures to diversify and secure critical supply chains, the European Union is intensifying its trade diplomacy—including with the Asia-Pacific region. After about ten years of negotiations, agreements with India, Indonesia, and Australia were announced in quick succession. Negotiations with the Philippines, Thailand, and Malaysia are also well advanced and could be concluded by 2027. Discussions are also underway regarding cooperation with the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) free trade zone.

Growth Industries: Green Tech, Smart Manufacturing and Defense

A side effect of the war in the Middle East is the increased interest in energy independence. As a result, investment in renewable energy is on the rise. Chinese exporters often benefit from this. In addition, power grids are being expanded and more closely interconnected. One example is the planned ASEAN Power Grid. Alongside this, interest is growing in nuclear power, alternative energy sources such as coal chemistry or hydrogen, and storage solutions.

Asia continues to expand its role as the world’s manufacturing hub. The spectrum ranges from apparel and furniture in South and Southeast Asia to electric cars and intelligent robots in East Asia. At the same time, value chains are being re-organized and production sites relocated. Southeast Asia and India are seeing high inflows of foreign direct investment. As early as 2024, the Asia-Pacific region accounted for 57 percent of global value added in the manufacturing sector. The region is consolidating its position in both consumer goods and the high-tech sector.

The next stage of Industry 4.0 is emerging there through the rapid expansion of robotics and automation in conjunction with artificial intelligence. German companies are well-positioned in the competition for physical AI. The speed and innovative momentum in many technology sectors in Asia mean increasing both competition and the opportunity to participate in it. Cooperation is also needed in the defense sector. Asian countries are building up their own capabilities but can also serve as partners for resilient supply chains, for example, in drone production.

Crises will not disappear. Companies in Asia must continue to prepare for challenges posed by technological and regulatory changes, alternative supply chains and transport routes, as well as the consequences of geopolitical and regional conflicts in the coming years.