Asia’s growth momentum to moderate in 2026 as trade cools; with mixed prospects for the Philippines: ING Asia Outlook 2026

Manila, Philippines, 12 December 2025 – ING has released its Opens in a new tabAsia Outlook 2026 and Opens in a new tabCommodities Outlook 2026 reports, outlining how Asia’s 2025 growth surprise, driven by exports and tech investment, is set to moderate next year as global demand and trade volumes soften. Even so, the report sees “pockets of opportunity” in Asian bond and FX markets as inflation remains benign with anticipated rate cuts, a weaker US dollar, and a generally soft energy and food price backdrop.

External demand outperforms, domestic demand lags

Asia’s 2025 expansion was driven overwhelmingly by external demand and technology rather than domestic spending. Tech-exporting economies like Taiwan and Singapore far exceeded forecasts, while the Philippines joined other domestically-driven economies like India in underperforming expectations. Despite muted inflation throughout the year, household consumption across the Philippines remained weak, reflected in softening retail sales growth and moderating wage increases amid rising labor force participation.

Within trade, AI‑related goods were the standout driver of global trade in the first half of 2025, with trade in this category surging by more than 20% year‑on‑year and Asia accounting for nearly two‑thirds of that growth. In contrast, non‑AI goods trade rose less than 4%, underscoring subdued investment outside tech and the drag from Chinese overcapacity on Southeast Asian manufacturing and capital spending.

“Asia’s 2025 story was all about exports and technology doing the heavy lifting while consumers stayed cautious,” said Deepali Bhargava, ING’s chief economist and regional head of Research for Asia‑Pacific (APAC). “The region’s challenge now is to transition from a narrow, trade‑and‑tech‑led upswing to a more balanced and durable expansion, precisely when global trade momentum is softening.”

Philippines: Exports resilient but domestic headwinds weigh on growth

Recent US tariff adjustments provide some near-term relief for the Philippines: the rollback of tariffs on roughly 200 food items supports Philippine agricultural exporters. However, broader US tariffs—at around 19% for a large share of Philippine goods—are still expected to weigh on 2026 trade performance.

Domestically, several factors contributed to softer momentum in 2025. Governance-related investigations have dampened business sentiment, while public infrastructure spending slowed in the third quarter. These short-term headwinds added to structural challenges: the software/BPO sector—traditionally a growth engine—remains heavily concentrated in voice-based services vulnerable to AI-driven automation, and the country has lagged peers in attracting manufacturing FDI despite regional supply-chain diversification.
ING notes that while the slowdown in government spending may drag on near-term growth, the administration’s strong anti-corruption stance is a longer-term positive. Improved governance typically supports investor confidence and strengthens the environment for capital spending. “As long as confidence returns and public investment picks up later, these efforts should ultimately support a more sustainable growth path,” Deepali noted.

Inflation, policy, and the 2026 macro backdrop

Inflation across Asia fell sharply in 2025, largely due to a substantial easing in food prices, and is expected to rise only modestly from cyclical lows in 2026. Inflation should remain within central bank targets in 2026, allowing rate-cutting cycles to continue in India, Indonesia, the Philippines, Taiwan and China, and supporting a generally easier monetary stance across the region.​ However, ING cautions that if inflation were to undershoot expectations, real interest rates could rise again, creating a more challenging environment for both business investment and consumer demand.

“In 2026, growth will no longer be flattered by the same surge in trade and tech, but lower inflation, targeted fiscal support and a friendlier FX backdrop mean investors can still find pockets of value,” Deepali said. “The key is to focus on markets where reforms, productivity gains and supply‑chain shifts are improving the quality of growth, not just the headline rate. In our view, the biggest macro risk for Asia is not high inflation but a mix of deflation pressures and high real policy rates that could stall the recovery.”

Reinforcing this picture, ING’s newly published Commodities Outlook 2026 highlights that the global oil market is set to move into a sizeable surplus next year as OPEC+ rapidly brings supply back, with Brent crude forecast to average around USD 57 a barrel in 2026. Grain prices have also likely found a floor after record harvests and more comfortable stock levels, with only a gradual tightening expected later in the outlook period. Taken together, these projections point to a relatively benign commodity backdrop for 2026.

“What’s been remarkable this year is how little oil prices have reacted to very real geopolitical shocks,” said Warren Patterson, ING’s head of Commodities Strategy for APAC. “With inventories rising and OPEC+ restoring supply, we see the market moving into a comfortable surplus next year and Brent averaging about USD 57.”

Tariffs, supply chains, and sector winners

Recent US tariff negotiations have narrowed the tariff gap between China and the rest of Asia, reducing simple “tariff arbitrage” advantages but not reversing deeper supply‑chain shifts. Asia and Europe are drawing closer through possibly new trade agreements with India and Indonesia, with plans to extend deals to the Philippines, Thailand and Malaysia by 2027, supporting cooperation in manufacturing, green infrastructure and digital connectivity.​

Sector‑specific changes are tilting gains toward agricultural exporters in India and Indonesia, which benefit from lower US food tariffs, and to India and Singapore in pharmaceuticals, helped by India’s generics strength and Singapore’s diversified, high‑value export base. Technology exports remain the biggest winners, with AI‑related demand and advanced computing infrastructure supporting a constructive outlook even as front‑loaded shipments fade. 

ASEAN’s role as a global production hub is deepening. The region now handles over 20% of global semiconductor assembly, testing and packaging and around 22% of global auto parts exports, backed by around USD 12 billion a year of greenfield semiconductor investment and rising EV‑related inflows.​ Sectors less exposed to agriculture, pharma or high‑end tech are expected to see fewer direct tariff gains and continue to face weaker global demand. ING also highlights strong growth in Asia’s commercial services trade, particularly in digital and IT services, as another area where the region is gaining share even as goods trade slows.

“Tariff truces do not mean business as usual,” Deepali added. “Supply‑chain security, sector‑specific tariffs and Europe‑Asia trade agreements are reshaping where production and capital go and that will be critical for investors looking beyond headline growth. Diversification started well before the latest tariff round, and the ‘China plus one’ strategy remains firmly in place.”

Country highlights

• China: Growth is expected to moderate to around 4.6% in 2026 from roughly 5% in 2025 amid property‑sector weakness and lingering deflation pressures.
• Japan: The “Sanaenomics” agenda, combining sizeable fiscal stimulus and solid wage gains and the Bank of Japan’s measured policy normalisation, is expected to support a stronger 2026. 
• South Korea: GDP growth is forecast to accelerate to 2.0% from 1.2%, driven by a robust semiconductor cycle and fiscal support.
• India: ING assigns 70% probability to a US trade deal in 2026 and expects at least 25bp RBI rate cut to support rupee and local markets.

FX and bond market implications

The report highlights a constructive view on Indian and Korean local-currency bonds, citing robust fiscal discipline in India and an index inclusion for Korea in major global bond indices. Real policy rates have come off their peaks but remain broadly supportive, and recent foreign inflows into local bond markets point to renewed investor interest in Asia.

On currencies, CNY and KRW are best positioned among low-yielders to benefit from an anticipated US dollar weakness in 2026. Among high-yielders, the INR stands out as the most compelling upside potential if trade dynamics improve, while the IDR and PHP are seen as more vulnerable given narrowing rate differentials and local structural weaknesses.