Asia’s tech-driven growth to cool in 2026, but FX and bond opportunities emerge: ING Asia Outlook 2026

Seoul, South Korea, 10 December 2025 – ING has released its Opens in a new tabAsia Outlook 2026Opens in a new tab 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.

Tech and trade outperformed, consumers lagged in 2025

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 domestically driven markets such as the Philippines and India underperformed as household consumption stayed weak despite muted inflation.

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.”

Slower growth, easier policy in 2026

ING forecasts Asia ex‑China GDP growth to slow to 3.5% in 2026, from 4% in the first half of 2025 and 3.8% for the full year, as global trade volume growth drops sharply from 2.4% to just 0.5% and the full impact of tariff changes feeds through. Large fiscal stimulus packages in Japan and South Korea are expected to offset part of the export drag, making these economies outliers with accelerating growth next year, while India and China are projected to experience more traditional cyclical slowdowns from strong 2025 levels.​

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. The report also notes that grain prices have 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

South Korea’s GDP growth is forecast to accelerate to 2.0% in 2026 from 1.2% in 2025, driven by a robust semiconductor cycle and substantial fiscal support.

“Korea’s economy is expected to prove resilient in 2026, largely thanks to political stability and robust semiconductor demand,” said Min Joo Kang, senior economist at ING Korea. “Strong global demand for high-end chips and ongoing supply chain diversification—specifically the deepening tech ties within the region—will help offset headwinds from moderating growth in our major trading partners. With next year’s government budget increasing by 8.1%, we expect an improvement in economic productivity driven by private sector investment.”

China’s growth is expected to moderate to around 4.6% in 2026 from roughly 5% in 2025 amid property sector weakness and lingering deflation pressures. In Japan, the “Sanaenomics” agenda combining sizeable fiscal stimulus and solid wage gains is expected to support a stronger 2026, while the Bank of Japan continues its measured policy normalisation. For India, ING assigns a 70% probability to a US trade deal in 2026 and expects at least 25bp RBI rate cut to support the 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 Korea’s inclusion in the World Government Bond Index (WGBI) from April 2026. 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.

“Korea’s WGBI inclusion will provide sustained support for the KTB market throughout 2026,” Min Joo added. “We expect 3-year KTB yields to range from 2.75% to 3.1% and 10-year yields from 3.0% to 3.4%. On the currency front, improved macro conditions—including the conclusion of the Bank of Korea’s easing cycle and easing trade tensions—should help strengthen the KRW. We forecast USD/KRW to appreciate to 1,375 by mid-2026 before settling at 1,400 by year-end.”

“On the policy side, there are also efforts to reduce FX market stress, including extending FX swap arrangements and exploring ways for NPS to fund more in offshore dollars, which reduces pressure on the won. Over the medium term, as reforms progress and global growth differentials normalise in Korea’s favour, we see scope for gradual KRW appreciation, but near-term volatility remains likely.”