Asian Economies Continue to Outshine Global Growth Amid AI-Driven Trade and Supply Chain Shifts

Asia's economic growth continues to outperform other major economies due in part to AI-led investment, intra-regional trade, and supply chain diversification. North Asia is benefiting from capital expenditures related to artificial intelligence, while Southeast Asian economies are seeing a boost as they integrate into regional supply chains.

The rise of China+1, previously associated with the US and Europe, is now visible within Asia itself. Larger economies like Japan and Korea are expanding their manufacturing footprints elsewhere in the region, with Korea investing in Indonesia's battery sector and Vietnam's electronics industry, while Japanese investment has become more focused on India.

India's GDP growth accelerated to 7.8% year-on-year in the second quarter, exceeding expectations and highlighting the resilience of domestic demand. Export growth has also strengthened significantly, driven by greater export diversification and a broader-based expansion across sectors and markets.

However, inflation pressures are building across Asia, driven by higher fuel prices and firmer demand-side pressures. The Bank of Japan is expected to deliver a 25bp rate hike to 1.25% at its September meeting, reflecting growing confidence that underlying inflation pressures will persist. Korea's central bank has already delivered back-to-back rate hikes in July and August, and another increase is anticipated.