ASEAN+3 Proves Its Resilience: Boosted by Domestic Demand and Semiconductors, But Geopolitical and Trade Risks Loom

A region proves its resilience, boosted by domestic demand and semiconductors, but geopolitical and trade risks darken the horizon.

Unexpected resilience in 2025

The global economy suffered one of the most violent trade shocks in decades in 2025. Yet, the ASEAN+3 region (the ten ASEAN members plus China, Japan, and South Korea) posted 4.3% expansion, significantly exceeding post-April 2025 U.S. tariff announcement forecasts. This is the central finding of the ASEAN+3 Regional Economic Outlook 2026 published by AMRO.

What could have been a standstill turned into a demonstration of solidity. Intra-regional trade offset the slowdown in exports to the United States, while semiconductor demand—driven by artificial intelligence—supported activity. Regional inflation remained low (0.9%), and foreign exchange reserves reached $6.5 trillion, nearly 40% of global reserves.

2026-2027: more moderate but still solid growth

For 2026 and 2027, AMRO forecasts 4.0% annual growth. The slowdown is due to the lagged effects of U.S. tariff hikes and weaker global trade. But several buffers are at play: private consumption remains dynamic, investment is buoyed by inbound foreign direct investment (FDI) flows, and the semiconductor sector continues to benefit from AI-related spending.

Inflation is expected to rise slightly to 1.4% in 2026 (versus 0.9% in 2025), driven by higher energy prices and subsidy rationalization in several economies.

A silent transformation: the region anchors itself

One of the report's major structural lessons is this: far from being a mere manufacturing platform oriented toward the West, ASEAN+3 has become a full-fledged final demand hub. In 2022, the region accounted for 27.9% of global final demand, surpassing the United States (26.1%).

Regional value chains have thickened, with China as the new central hub—replacing Japan from the 2000s. Now, nearly half of value chain activities occur within ASEAN+3, compared to 38% in 2000. Meanwhile, the U.S. share in final demand directed to the region (excluding China) fell from 31.4% in 2000 to 19.2% in 2022.

Risks: uncertainty remains queen

Despite this resilience, AMRO stresses: risks are tilted downward. Three major sources of uncertainty dominate:

• The future of AI: a slowdown in AI-related investments would weigh on semiconductors; conversely, accelerated adoption would be an upside factor.

• Trade tensions: U.S. tariffs remain unpredictable, with Section 301 and 232 investigations that could hit new sectors (pharmaceuticals, semiconductors).

• Energy prices: the Middle East conflict raises the risk of a sustained oil price surge. In a severe scenario (oil above $100/barrel), regional growth could drop to 3.7% and inflation exceed 2% in 2026.

Cambodia: a case of trade resilience

The report highlights Cambodia's stunning performance amid U.S. tariff hikes. In 2025, its exports to the United States rose by about 28%, despite high tariffs. How to explain this paradox?

On one hand, orders were front-loaded before the taxes took effect. On the other, Cambodian suppliers and U.S. distributors absorbed part of the tariff costs to preserve market share. The country continues to attract FDI, particularly in apparel and electronic components. However, AMRO warns: heavy exposure to the U.S. market (over 25% of total exports) remains a major vulnerability. Diversifying toward regional markets is thus a priority.

Economic policies: preserve flexibility

Faced with this uncertainty, AMRO advocates a pragmatic approach. Fiscal and monetary room for maneuver remains comfortable in most economies. But shocks differ: an energy price surge (supply shock) justifies targeted measures for vulnerable households, while a global demand slowdown (demand shock) calls for coordinated monetary support.

Central bank communication becomes crucial: in a radically uncertain environment, explaining how policy would respond to different scenarios is more credible than overly precise forecasts.

A region better armed than it appears

ASEAN+3 is no longer yesterday's dependent region. Its regional anchoring, productive diversification, and solid reserves provide real resilience. But upcoming shocks—technological, geopolitical, or energy-related—will require constant vigilance. As AMRO sums it up: “Uncertainty is not a problem to solve, but a condition in which to navigate.”

Useful link: AMRO website: https://www.amro-asia.org