- We expect Asia and Asean growth to be only marginally lower in 2026.
- Food and fuel inflation are not sources of worry.
- Fiscal and monetary issues are worrisome largely with respect to the US.
- Having faced numerous stress tests since the pandemic…
- …governments and firms appear in better shape to deal with geoeconomic disruption
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Overview: Separate Paths
A year that began with unprecedented fear about global trade and multilateral rules-based order is ending with guarded relief. It has turned out to be a test of resilience that the global economy in general and trade intensive Asia has passed well so far. Companies’ sentiments have made a V-shaped recovery, along with exports. Economic growth is on track to be only marginally lower than the previous year and the overall macro environment is stable.
Why is 2025 turning out to be a better-than-expected year and why are we constructive about the 2026 outlook? We have two key considerations:
First, US trade restrictions are not turning out to be as blanket and burdensome as had been feared initially. Tariffs are coming in various shapes and forms, characterised by varying rates, exemptions, and grace periods; all subject to endless negotiations. The appetite of US consumers has not been dented by these developments, it seems. Consequently, most Asian countries have enjoyed strong exports growth to the US this year. China, unsurprisingly, is not in that camp, with its exports to the US down 18%ytd. But its overall exports are up this year, reflecting a robust growth of 9% to the rest of world. This likely reflects a mix of transhipment and indigenous demand from its non-US trading partners. Either way, global trade continues to grow, defying fears from earlier this year.
Our acronym of the year, TOTUS, Trade Outside the United States, takes us to the second factor explaining surprising resiliency. It also underscores the title of this annual outlook, Separate Paths. The criticality of the US in global systems of trade, commerce, and technology, not to mention geopolitics, will remain unchallenged for the time being, we’re sure. But as the US shies away from multilateralism and insists on engagement through coercion, the world would have no choice but to set rules and standards outside the US. Through the course of this year, we have seen numerous examples of this, with nations remaining engaged with the US, but at the same time moving on with doing deals with the rest. From cyber security to climate tech to cross-border payments, many deals are being signed that supplement, if not replace, multilateral standards that were once set up with US backing, but ones from which the US has withdrawn. US overreach on payments paves the way for alternative systems; visa restrictions push students and academics elsewhere; export controls on technology leads to parallel systems from China or EU. The T in TOTUS does not just stand for Trade; it can stand for Talent, Tech, and Travel as well.
As separate paths are charted, investment flows get recalibrated. The likes of Malaysia, Singapore, and Vietnam are already seeing record FDI; we see more potential in 2026 and beyond. Monetary conditions are constructive; food and fuel inflation not an issue. The region is stepping into the new year with reduced anxiety. Having faced numerous stress tests since the pandemic, governments and firms appear to be in better shape to deal with disruption, be it economic, geopolitical, or digital.
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