Asia-Pacific’s economic growth is expected to remain resilient as an artificial intelligence (AI)-driven technology export boom supports the region, although weak domestic demand in China, elevated energy prices and tighter US monetary policy pose risks, S&P Global Ratings said on Tuesday.
In a report S&P raised its baseline 2026 growth forecast for Asia-Pacific to 4.6 percent, up 0.2 percentage point from its previous forecast, while projecting growth of 4.4 percent in 2027.
It said international investment related to artificial intelligence was boosting the region’s technology exports, while domestic demand remained generally resilient outside China.
“Strong exports are a key growth driver, especially in economies benefiting from the AI-related tech export surge,” it added.
In the three months through July, US dollar-denominated exports grew by an average 30 percent year on year across the region, with only Indonesia and Japan recording growth below 10 percent.
S&P expects technology export growth to peak soon but remain robust over the next 12 months. Non-technology exports are also expected to benefit from continued global economic expansion.
The report said the AI investment boom, particularly in the US, had helped global growth withstand pressure from elevated energy prices.
S&P’s purchasing managers’ index data showed that input costs and supplier delivery times remained elevated amid high oil prices linked to the Middle East conflict, while rising consumer inflation was weighing on purchasing power in the US and Europe.
However, global industrial sentiment remained resilient through August, including across Asia-Pacific, supporting S&P’s view that global growth would hold up in 2026 and 2027.
The technology-led export boom has been particularly important for economies such as Taiwan and South Korea.
S&P noted that the share of AI-related exports from the two economies to destinations outside the United States had increased in 2026.
While some of the increase could reflect supply-chain adjustments, S&P said it could also indicate that the AI investment boom was broadening beyond the United States.
Still, the agency warned that the region’s growth outlook remains exposed to a potential slowdown in AI-related spending.
Much of the initial AI investment has been undertaken by a relatively small group of companies, particularly US hyperscalers, leaving the technology supply chain vulnerable to changes in their investment plans.
China illustrates the uneven nature of the region’s growth outlook. S&P expects the Chinese economy to grow 4.3 percent in both 2026 and 2027, with weak domestic demand offsetting strong exports.
Consumption and investment remained subdued through August, reflecting a prolonged housing downturn, weak confidence and fiscal contraction during the first seven months of the year.
S&P estimated that real retail sales fell 0.4 percent year on year in August, while fixed asset investment declined 12.9 percent. New residential housing sales during the first eight months of 2026 were 52 percent below the same period in 2020, while housing starts were 79 percent lower.
“Domestic demand is unlikely to accelerate over the next quarter at least,” S&P said, citing subdued confidence and modest fiscal and housing-market stimulus.
By contrast, exports have continued to surge, partly because of the AI-related technology boom. Both the volumes and prices of technology products have increased, while the processing sector has benefited from stronger demand for components used in products that are subsequently re-exported.
S&P said the strength of technology exports had also helped revive China’s processing sector, which had been weak for an extended period.
Outside China, domestic demand has generally remained resilient. Consumption growth was particularly strong in India, Indonesia, Malaysia and Taiwan, while investment momentum was strong in Australia, India, Indonesia, Singapore, Taiwan and Thailand.
Policy measures to limit the pass-through of higher global oil prices into domestic fuel prices have also helped support demand across much of the region.
S&P said average prices of oil imports remained above US$100 a barrel through July, raising industrial input costs and putting pressure on corporate margins, particularly among smaller firms.
Nevertheless, inflation remains broadly manageable across the region. Higher oil prices are expected to push inflation higher, while food prices could also increase because of El Niño.
S&P expects some Asia-Pacific central banks to continue raising interest rates this year to contain inflation and support currencies, although the increases should remain modest under its baseline scenario.
It expects 25-basis-point rate increases in the remainder of 2026 in Australia, India, the Philippines, South Korea and Taiwan.
The agency said higher inflation caused by rising oil prices and greater currency pressure from higher US interest rates were key risks that could prompt larger rate increases.
The US Federal Reserve raised its policy rate by 25 basis points in mid-September, and S&P’s US team expects two further 25-basis-point increases later this year.
Against this backdrop, S&P said Asia-Pacific’s economic expansion remained supported by the combination of strong technology exports and resilient domestic demand, although the region faces increasing exposure to changes in global AI investment and energy markets.
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