AI boom, energy shocks see Southeast Asia growth bifurcate

Vietnam remained the fastest-growing major economy in Southeast Asia during the second quarter, with Thailand trailing behind, as technology and energy influenced the region's divergent fortunes. Malaysia and Singapore were the second and third-fastest expanding economies, buoyed by strong demand for semiconductors and other components utilized in global technology supply chains.

The Philippines, along with Thailand, was more affected by rising energy costs due to Middle East conflict. Infrastructure spending decline further hampered growth in the Philippines.

The disparity in growth highlights the uneven benefits of Southeast Asia's increasing importance as a substitute for China in manufactured exports. However, it also emphasizes the diverse impacts of this shift, with economies reliant on AI-related technology supply chains proving more resilient and others more vulnerable to expensive imported energy experiencing reduced momentum.

Policymakers across the region are currently debating methods to shield businesses and consumers from volatile oil prices without impeding economic growth.

DBS Group Holdings Ltd. economists Chua Han Teng and Radhika Rao noted that growth differed across countries, influenced by domestic resilience in the face of the Middle East crisis and the share of technology exports within the trade mix. Expansion is expected to further bifurcate due to the unresolved Middle East conflict and sustained global demand for technology exports driven by AI-related hardware.

Oversea-Chinese Banking Corp. recently upgraded its full-year forecasts for Vietnam and Indonesia to 8.2% and 5.2%, respectively, while downgrading the Philippines' outlook to 3.2% from 3.8% and raising Thailand's to 2.4%. This was attributed to a stronger private sector driven by increased data center investments.

Economists, led by Lavanya Venkateswaran, observed that despite differing fiscal policy responses to higher global oil prices, the balance of revisions favored growth upgrades rather than downgrades. This supports the view that monetary policy across the region will likely remain on a tightening path. Singapore also upgraded its 2026 economic growth forecast this month, as the AI boom boosted trade and manufacturing, partially offsetting the slowdown from the Iran war.

The Ministry of Trade and Industry stated that the global AI investment boom is stronger than anticipated, expecting further acceleration in AI-related capital expenditure to lift growth prospects for economies connected to the global technology value chain.