DBS Research has projected ongoing global artificial intelligence (AI) tech expansion to provide cushion to ASEAN’s economy.

The research house said in a report on Tuesday that it expects persistent AI-led demand for electronics shipments to provide cushion to the region, even as risks from impending US semiconductor tariffs loom.

According to the report, ASEAN has become a critical player in the AI hardware ecosystem, benefiting from backward linkages to the investment boom in other parts of the world, particularly the US.

Across the AI value chain, countries are present in the ‘hardware’ to ‘software’ solutions.

This includes data centers, AI infrastructure build-up and hardware manufacturing on the ‘hardware’ part and applied AI/ specialized solutions on the ‘software’ layer.

On the ‘hardware’ part, DBS noted the bloc’s strength stems from the depth of the supplier ecosystem, across high value added to low tech facilities – for instance precision engineering for fabs, outsourced semiconductor assembly and test services (OSAT), radio-frequency components for network gear, and optical interconnects all scale with AI compute.

The region’s strength also stems from data center foreign direct investment (FDI) expansion which has been robust, attracted by ASEAN’s land availability, connectivity, gradual shift towards clean energy and potential expansion in manufacturing capabilities.

Besides, chip manufacturing is maturing in the region, moving up the value chain from purely mature-node.

It is noted that in 2024, ASEAN climbed to the fifth position globally, hosting about 390 data centers versus about 295 in 2020.

This was accompanied by a sharp increase in data center capacity to about 1.7GW from about 800MW in 2020, according to the ASEAN Investment Report.

“Capacity is projected to grow by compound annual growth rate (CAGR) of at least more than 10 percent until the end of this decade from a market size of about about $11 billion to $13 billion in 2024,” said DBS.

Amongst the ASEAN-6 countries, DBS highlighted that Malaysia is in the lead, boosted by investment commitments by big-ticket US-based hyperscalers, such as Amazon Web Services, Google, Microsoft, and Oracle.

Meanwhile, Singapore is viewed as a mature hub, with a growing operational base, with incremental scale up constrained by energy/ land uses.

Spillover benefits are expected in the upcoming Singapore-Johor Special Economic Zone, said DBS.

“Indonesia is a high growth market, especially with new commitments in Greater Jakarta and Batam, while Thailand, Vietnam, and Philippines are emerging markets,” it added.

The report also highlighted that ASEAN remains committed to upholding an open and rules-based multilateral trading system and deepening integration by actively upgrading existing Free Trade Agreements (FTAs) while exploring new upgrades with like-minded partners.

Landmark agreements signed last year include the ASEAN Trade in Goods Agreement (ATIGA) Upgrade, and the ASEAN-China Free Trade Area (ACFTA) 3.0 Upgrade, both during the 47th ASEAN Summit in October.

“These agreements streamline customs procedures and trade facilitation, and expand into new areas such as digital trade, green economy, and supply chain connectivity,” said DBS.

The research house said the bloc will look to expand and diversify its Trade Outside the US (TOTUS) network, while also signing a major digital agreement this year.

They will also kickstart negotiations with South Korea, its fifth largest trading partner, this year to upgrade their free trade agreements (FTA) to include the digital economy, green economy, and supply chain resilience.

Lastly, the region will sign the Digital Economy Framework Agreement (DEFA), the world’s first region-wide agreement dedicated to digital economy governance, in 2026.

“Southeast Asia (SEA)’s digital economy is already booming and could cushion a moderation of goods trade,” said DBS.

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