ASEAN in Focus: AI boom driving divergent economic fortunes
28 September 2026
Key takeaways
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Growth across ASEAN is proving surprisingly resilient in the Year of the Horse…
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…with the AI hardware boom overpowering the impact of the energy shock.
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However, look closely, and highly imbalanced growth poses increasing challenges.
Indonesia’s growth remains resilient, supported by investment, manufacturing and services, although weaker external conditions could test confidence. Thailand’s goods imports have spiked in the race to build data centres, pushing the trade balance into deficit. Malaysia is benefiting from the dual tailwinds of the AI wave and higher commodity prices, driving a wider trade surplus. Growth continues to slide while inflation remains high in the Philippines, but a weak peso could improve the economy’s competitiveness. Vietnam grew at the fastest pace in ASEAN in 2Q, backed by robust manufacturing, investment and consumption. Singapore’s growth has been impressive, albeit uneven, with AI and global trade-linked sectors benefiting while domestic consumer-facing sectors remain lukewarm.
Economy profiles
Key upcoming events
Source: LSEG Eikon, HSBC
Indonesia
Some breathing space, but for how long?
Economic data remains constructive, with growth averaging 5.4% in 1H26 – much higher than expected. Investment is strong, reinforced by a notable pick-up in private sector credit growth. However, consumption has moderated: government spending has slowed and household demand has softened as stimulus effects and festival-related support faded. On the production side, manufacturing has been resilient and services robust. Inflation remains benign and fiscal excesses have been reigned in. The year-to-date fiscal deficit in July was lower than at the same time last year.
All major asset classes – FX, bonds and equities – which lagged Asian peers since the start of the year, showed some signs of a rebound in August. The IDR strengthened against the USD (to c17,700 levels, down from c18,000 a month ago), government bond (SBN) yields fell, and the equity market gradually rebounded.
What’s working in Indonesia’s favour? Hard work and a bit of luck. Bank Indonesia (BI) hiked policy rates by 100bp in May-June. As a result, the interest rate differential versus the US didn’t compress materially and inflows into the debt market rose, albeit modestly. Despite a sudden change in BI leadership, there were some signs of policy continuity. Finally, broader USD weakness worked in the IDR’s favour.
And yet, vulnerabilities remain. One, the trade balance has slipped into deficit from surplus for the first time since 2020. Indonesia, despite being a commodity exporter, has not benefited much from higher commodity prices yet. Meanwhile, imports have risen sharply, led by electronics and machinery – partly reflecting high chip prices. Two, global and other exogenous risks persist. A stronger USD could weigh on the IDR’s recovery (by incentivising outflows). This, along with rising oil prices and strengthening of El Niño conditions in 4Q, could impact the entire economy. Three, the verdict on Indonesia’s emerging market status is still awaited. Recall that MSCI had postponed its annual equity market classification review for Indonesia until November 2026, giving the country extra time to demonstrate meaningful progress on reforms.
With so much going on externally, the need for domestic policy certainty is becoming even more important than before. A recent policy change has been the appointment of a new Finance Minister – Suahasil Nazara. Nazara is an experienced technocrat with several years of experience as the deputy of Sri Mulyani, a known fiscal conservative. As such, it is likely that he continues to stick closely to the 3% fiscal deficit cap.
Credit growth has picked up sharply
Source: CEIC, HSBC
Inflation has remained close to BI’s target range of 1.5-3.5%
Source: CEIC, HSBC
Malaysia
ASEAN’s silver medallist, likely for the second year
Despite facing an energy shock and ongoing tariff developments, growth in many trade-dependent economies has defied these headwinds. In fact, we have even seen growth accelerate in some economies in 2Q26 in ASEAN. This is certainly the case in Malaysia.
Malaysia’s GDP growth momentum accelerated to 2.5% q-o-q (seasonally adjusted) in 2Q, bringing y-o-y growth to the 6% club, thanks to booming trade. After all, Malaysia is Asia’s only dual beneficiary of both the AI wave and high commodity prices. It is not only one of Asia’s three net energy exporters but also on the frontline to benefit from the AI cycle, given its extensive tech manufacturing supply chain. On a three-month moving average basis (3mma), Malaysia’s electronics momentum jumped 60%, a trend we also observed in Singapore and Vietnam, while commodity momentum also rose over 20%.
It is not only electronics exports: the trade balance also matters. Singapore and Malaysia are the only two economies in ASEAN that have seen wider trade surpluses, unlike Thailand and Vietnam, which have seen consistent trade deficits, despite rising electronics exports. Malaysia’s average trade surplus in electrical machinery and electronics (E&E) products saw a 64% y-o-y rise so far this year versus its 2025 average, already exceeding its historic high in 2022 when there was a global shortage of auto chips.
That said, Malaysia’s strength is not limited to trade – it is more broad-based with decent domestic demand. For one, private consumption remains the backbone of growth, expanding just a tad below 5% y-o-y. The labour market remains healthy, with the unemployment rate at 3% and wages picking up. Elsewhere, public and private investment remained strong, though both have continued to moderate from double-digit to single-digit growth.
Overall, we forecast Malaysia’s 2026 GDP growth at 5.2%, which means that the country could be ASEAN’s second fastest-growing economy for the second consecutive year. Given the AI boom, we recently upgraded Malaysia’s 2027 GDP to 5% (from 4.7%). We believe that Malaysia has a solid story, both structurally and cyclically.
Outside of growth, inflation has been benign. Headline inflation rose by only 1.8% y-o-y, with core inflation hovering around 2% y-o-y in the first seven months of 2026. This is largely thanks to Malaysia’s generous subsidies, with the petrol RON95 price remaining at MYR1.99/l with a monthly quota of 300l and the diesel price at MYR2.10/l with a monthly cap of 400l. Overall, we recently trimmed our inflation forecasts to 1.9% (from 2.5%) for 2026 and to 2.3% (from 2.7%) for 2027.
Malaysia is a dual beneficiary of the AI boom and high commodity prices
Source: CEIC, HSBC
Still strong, but both private and public investment growth moderated
Source: CEIC, HSBC
Philippines
Aftershocks
Growth continues to slide while inflation remains too high. GDP has surprised to the downside for the fourth consecutive quarter, with growth slowing to 2.3% y-o-y in 2Q26, the slowest since 2009, barring the COVID-19 pandemic. The aftershocks of last year’s public infrastructure fallout continue to reverberate throughout the economy. Unemployment has risen in line with less demand for construction. Therefore, households have trodden with caution; private consumption has tumbled to well below potential, growing by just 2.9% y-o-y in 2026 year-to-date.
Meanwhile, the trade deficit has widened back to levels last seen during the 2022 oil shock. Of course, pricey fuel imports are partly to blame. But demand for supercomputers and high-tech hardware – items the economy needs to import – has also been strong, with the economy joining the global data centre bandwagon. Therefore, despite weaker demand for cement, steel, and drilling equipment, capital imports continue to surge. Electronic machinery imports have risen 43% y-o-y, year-to-date – that’s a lot of computers.
This has stoked concerns about the balance of payments. The economy is well known for being a consumption powerhouse. However, with consumption stumbling as of late, business and consumer sentiment has remained downbeat. Externally, FDI continues to dip while hot money continues to flow out. Consequently, the PHP hit a record low against the USD multiple times in September, keeping the Bangko Sentral ng Pilipinas (BSP) walking at the tip of its toes.
However, there is a silver lining: a weak PHP − provided the depreciation is orderly − can help lift the economy’s competitiveness amid the AI tech upcycle. Real goods exports in 2Q26 jumped 17% y-o-y, and leading indicators look robust. Not only did the Philippines post the highest PMI in ASEAN in August, but it was also the highest reading since end-2016. Exports roared after that reading; in 2017, goods and services exports grew 17.4% for the year in real terms.
Looking ahead, growth in 2027 is likely to improve to 4.8%. The fading base effects of the public infrastructure fallout alone, should, lift growth. Growth in 2028 should then continue to improve as the election season boosts overall demand. We expect growth in 2028 to rise to 5.4%. Nevertheless, without fiscal policy operating at full throttle, GDP is likely to remain below the economy’s potential, even if manufacturing and exports perform better than before.
Public infrastructure spending continues to fall, but capital imports continue to rise
Source: CEIC, HSBC
A competitive PHP should eventually be supportive of exports and manufacturing
Source: S&P, HSBC
Singapore
AI-powered outperformer
When the Middle East conflict broke out early this year, ASEAN was widely viewed as one of the most affected regions. However, it is important to remember that ASEAN is diverse. Despite the conflict, two economies stand out for their relative resilience: Malaysia and Singapore. The former’s performance was broadly expected as it is one of only three net energy exporters in Asia. The latter’s economic resilience was less widely anticipated, given its heavy reliance on imports.
Despite being a developed market, Singapore has been growing at rates more typical of an emerging market. Singapore’s economy expanded by more than 6% y-o-y in the first half of 2026, making it the second-fastest growing economy in ASEAN, just after Vietnam’s 8%-plus growth.Beyond the strong y-o-y print, growth momentum was also strong.
While manufacturing momentum declined in 1Q, it was more of a healthy pull-down from previously sustained manufacturing strength. Industrial production (IP) saw a strong rebound of over 6% q-o-q (seasonally adjusted) in 3Q, reflecting the continued strength in the AI-fuelled tech boom. This is also reflected in high frequency indicators, pointing to an exceptionally strong electronics trade. On a three-month moving average basis, electronics non-oil domestic exports (NODX) accelerated by over 100% y-o-y in July.
Despite impressive growth, Singapore’s growth was rather uneven. The sectors that are closely linked to AI and global trade, such as advanced manufacturing and wholesale services, have benefitted handsomely from this upturn. However, domestic consumer-facing sectors like retail sales and ‘food and beverage’ services continue to see lukewarm performances.
However, overall, we are ever more convinced of sustained strong growth in Singapore. We recently upgraded our growth forecasts to 5.1% (from 4.6%) for 2026 and to 3.3% (from 2.5%) for 2027.
Meanwhile, inflation pressures have started to kick in. Partially, this is related to the lagged effect of the electricity price hike on core inflation. Based on the Energy Market Authority’s data, the electricity tariff has increased by over 7% q-o-q alone in 3Q, lifting core inflation to 2% y-o-y. We expect inflation to stay above 2% y-o-y from 3Q26 and likely to fall below 2% only in 4Q27. Overall, we tweaked our core inflation forecast slightly to 1.8% (from 2%) for 2026 but kept it at 2.2% for 2027. We do not think the Monetary Authority of Singapore (MAS) has completed its hiking cycle.
Semiconductor non-oil domestic exports (NODX) surged in 2026
Source: CEIC, HSBC
Inflation jumped to 2% y-o-y in July though the momentum remained steady
Source: CEIC, HSBC
Thailand
The search for computing power
Let’s put aside oil and the Strait of Hormuz for a moment, and we notice numbers that we haven’t seen in Thailand in decades. For instance, goods imports have been exceptionally strong, whereby Thailand’s current account deficit in 2Q26 widened to as much as 12% of GDP. Even if we remove oil, Thailand’s trade balance would still be in deficit – a first since 1998.
This is all because of Thailand’s search for computing power. Ever since the February 2026 election, the investment floodgates have opened. Private investment in Thailand has been growing at c16% y-o-y, the fastest since 2013, as a swathe of data centres is being built across the economy. This has led to an ‘AI deficit’, whereby demand for high-end electronic machinery – hardware that Thailand does not produce – is outpacing export demand, even amidst an AI tech upcycle. And mind you, goods exports have already risen 14.8% y-o-y year-to-date.
Despite punchy capital spending and exports, growth remained subdued at 1.9% y-o-y in 2Q26. Higher oil prices were partly to blame. However, it is also important to consider how concentrated the benefits of the AI tech upcycle are. According to a study by the Bank of Thailand (BoT), 1% of tech exporters have a significant market share of 85% of Thailand’s tech exports, with most being foreign firms. In addition, data centres are highly dependent on capital imports, such as those hightech components you get from Taiwan or South Korea. The domestic value-added of data centre investments is, simply, limited: they don’t create higher wages nor more jobs. As a result, private consumption has remained subdued and has been left behind by private investment.
Regardless, we expect growth to accelerate in 3Q26. The ongoing fiscal stimulus called the ‘Thai Help Thai Plus’ should lift consumption, especially given its size (c2% of GDP). After that, fiscal policy is likely to ease. The fiscal year 2027 budget is only 0.2% higher than the previous year’s budget to ensure that the public debt-to-GDP ratio remains within the country’s self-imposed limit of 70% (Reuters, 23 June 2026).
Investment and exports are likely to continue to push ahead. However, limited spillover to the general economy means they are unlikely to offset the drag caused by softer fiscal policy. We expect growth to slow to 1.6% in 2027. However, 2028 should be a better year. Once these data centre investments come online, Thailand is likely to unlock a new growth driver for the economy: computer services. Just look at Malaysia. We expect the growth outlook to improve in 2028, whereby we pencil in a full-year growth rate of 2.6%.
Private investment is surging while private consumption remains relatively subdued
Source: Macrobond, HSBC
Demand for data centres has led to a sharp deterioration in the trade balance
Source: CEIC, HSBC
Vietnam
The new normal
Unlike some peers whose economies have been hit hard, Vietnam has proved to investors that its economy has more than just survived the oil shock – it has thrived. Defying the energy shock, Vietnam saw GDP growth accelerate to 8.4% y-o-y in 2Q, easily sustaining its position as one of Asia’s fastest-growing economies.
The manufacturing sector expanded briskly. This is also reflected in Vietnam’s impressive trade performance. Export growth accelerated to over 20% y-o-y in the first eight months of 2026, driven by the boom in electronics shipments – a similar trend seen in other tech-exposed Asian economies. While its electronics products are still concentrated in low-value products, the existing tech cluster and promising talent pool put Vietnam in an advantageous position when competing with ASEAN peers to further climb up the value chain.
In addition to trade, strong growth was broad-based. What was surprising was the significant jump in real investment in 2Q, essentially growing by over 20% y-o-y in one single quarter to lift investment growth YTD to 15%. Although no detailed breakdown is available, we believe the investment boom is driven by ongoing strength in the foreign direct investment (FDI) inflows and an accelerated push for mega infrastructure projects.
Meanwhile, consumption remains decent, despite high energy prices. Private consumption growth remained steady at around 8% y-o-y in 2Q, partly thanks to an improving labour market and the tourism boost. Vietnam retains the crown in ASEAN for the highest recovery rate of tourists relative to pre-pandemic levels. It is the only regional economy that saw tourists exceeding 2019’s level, not to mention by a margin of 40%. Vietnam has welcomed over 15 million tourists YTD, paving the way to achieve its annual target of attracting 25 million international visitors.
Overall, we forecast GDP growth of 8.2% for 2026 and 8.0% for 2027. We remain constructive on Vietnam’s structural fundamentals.
In addition, inflation remains remarkably sensitive to global commodity price swings. While it cooled in June and July, headline inflation rebounded to reach almost 5% y-o-y in August, due to rising oil prices. We maintain our 2026 inflation forecast at 4.5%, which is the State Bank of Vietnam’s (SBV) ceiling, but we revised up our 2027 forecast to 3.5% (from 3.3%). However, risks remain to the upside, given elevated energy prices.
Vietnam’s export boom is largely driven by strong growth in consumer electronics
Source: CEIC, HSBC
Headline inflation exceeded the SBV’s 4.5% ceiling again in August
Source: CEIC, HSBC
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