Regional Economic Outlook Emerging Asia - September 2026

Economic resilience tested by external shocks

Asian economies affected differently by energy and trade shocks

The global economy faces renewed pressure from two shocks: rising energy prices driven by the prolonged Middle East conflict and a deterioration in the global trade environment. Higher energy costs have increased inflation, transport expenses and business uncertainty, while trade is increasingly shaped by tariffs, export controls and geopolitical considerations rather than efficiency. Emerging Asia remains the world’s main growth engine, supported by stronger external positions, deeper domestic markets and improved policy frameworks. However, resilience differs significantly across countries. Energy-importing economies such as India, Thailand, the Philippines and Vietnam are more exposed to higher fuel costs, while China and Malaysia are better positioned to absorb the shock. Trade fragmentation creates opportunities through supply-chain diversification, particularly for Vietnam, Malaysia and India, but success increasingly depends on compliance, transparency and institutional strength. Ultimately, countries with strong domestic demand, credible policies and effective institutions are best placed to withstand external shocks, while those facing inflation, debt, political uncertainty or weak confidence remain more vulnerable.

Asian trade flows are shifting, not shrinking

Focusing on the countries’ trade positions and their associated opportunities and vulnerabilities, we conclude that trade remains a key driver of Emerging Asia’s growth, but is becoming more geopolitical, selective and compliance-driven. US-China rivalry is redirecting rather than reducing trade flows through tariffs, export controls, rules-of-origin requirements and supply-chain scrutiny. China remains central to global manufacturing, particularly in high-tech, clean-energy and electronics sectors. However, its export strength also reflects weak domestic demand and fuels tensions over overcapacity and subsidies. China-plus-one strategies continue to benefit Vietnam, Malaysia and India, but investment increasingly depends on infrastructure, policy stability and regulatory compliance. AI-related demand supports regional exports, while adding concentration risk. Meanwhile, the US offers market scale but policy uncertainty, while Europe provides more predictable access but stricter standards. Overall, trade is becoming more regionalised, regulated and shaped by geopolitical considerations rather than pure economic efficiency.

Growth outlook: resilience diverges

Emerging Asia is expected to remain a strong growth region in 2026-27, but economic performance is becoming increasingly uneven. Vietnam is the outperformer, with GDP growth driven by investment and electronics exports, though rising inflation and financial stability risks point to overheating pressures. India also shows robust growth, supported by strong domestic demand, infrastructure spending and investment, but also faces persistent inflation challenges. Malaysia benefits from AI-related demand, electronics exports and data-centre investment, although its outlook is increasingly tied to the global technology cycle. China remains a key growth anchor, but external demand cannot continue to compensate for weak household consumption and investment. Indonesia maintains stable growth, though policy credibility is under closer scrutiny. Thailand remains constrained by weak domestic demand and high household debt, while the Philippines faces the most difficult near-term mix of high inflation and weak growth. Overall, resilience remains strong but differs significantly across economies.