SwedCham APAC Webinar with SEB: Asia Pacific: Risk or Opportunity?

Asia Pacific Outlook: Geopolitics, Growth and the Regional Business Environment

Speaker: Eugenia Fabon Victorino, Head of Asia Strategy at SEB

A summary of the meeting

The SwedCham APAC seminar featured Eugenia Fabon-Victorino, SEB’s Chief Asia Economist and Head of Asia Strategy. She examined the forces shaping Asia’s economic outlook, focusing on the AI-driven electronics boom, inflation, El Niño, China’s slowing growth, and geopolitical uncertainty.

AI Is Fueling an Electronics Export Boom

Asia is benefiting from an exceptional rise in electronics exports driven by global investment in artificial intelligence. Taiwan and South Korea are the main beneficiaries because of their central roles in the advanced semiconductor supply chain.

Malaysia and several other Asian economies are also experiencing stronger exports, although the benefits vary considerably according to the electronic products they manufacture. Indonesia has gained less from the technology cycle because commodities, rather than electronics, dominate its exports.

Dependence on Technology Creates Risks

The semiconductor industry is highly cyclical. Economies that depend heavily on technology exports could therefore face a sharp slowdown once AI investment reaches its peak.

Countries with more diversified sources of growth may be better positioned. South Korea, for example, benefits not only from electronics but also from industries such as shipbuilding and tourism.

Inflation Is Squeezing Businesses and Governments

Although government subsidies have partly contained energy-related inflation, businesses have not always been able to pass higher input costs on to consumers. This is compressing corporate profit margins.

Subsidies also involve fiscal trade-offs. When governments absorb higher energy or food costs, they may have less funding available for infrastructure and other investments.

El Niño Could Push Food Prices Higher

El Niño could shift the main source of inflation from energy to food. The Philippines is particularly exposed because inflation is already above its target and food accounts for approximately 37% of its consumer price index.

India is the next most vulnerable economy and could respond to rising food prices with interest-rate increases. Even if geopolitical tensions ease and energy prices decline, inflation may remain persistent where broader price pressures have already taken hold.

China’s Economy Presents a Mixed Picture

China continues to experience weak domestic demand, subdued retail spending, and poor property-market sentiment. At the same time, its exports remain strong.

SEB expects China’s economy to grow by approximately 4.6%, within the government’s target range of 4.5–5%. Beijing is therefore likely to provide only enough support to meet that target, primarily by accelerating already-budgeted spending instead of launching a major new stimulus package.

The Property Market Remains Important

China’s property market continues to affect household confidence because much of household wealth is tied to real estate. Conditions vary considerably across the country: prices are showing signs of improvement in major cities while continuing to decline in smaller cities.

This reflects a broader divide in the Chinese economy, where strong export industries contrast with weak domestic sectors.

Asian Currencies Remain Relatively Stable

The Chinese yuan is expected to appreciate gradually against the US dollar, potentially reaching 6.60 by year-end. Authorities will likely manage this appreciation carefully because exports remain China’s strongest source of growth.

Currency volatility has generally remained low across Asia. Further appreciation of the South Korean won may also be limited following its recent recovery.

Chinese Competition Is Increasing in Southeast Asia

Weak domestic demand is encouraging Chinese companies to pursue growth in Southeast Asia, Africa, and Latin America. Their expansion is creating pricing pressure and competitive challenges for established international companies.

Businesses operating in Southeast Asia may find it difficult to compete solely by reducing prices, particularly when they also depend on China for materials and components.

AI Could Reshape Southeast Asia’s Labor Market

AI may initially threaten service-sector jobs that can be automated. However, Southeast Asia’s young and technologically adaptable population could eventually support the development of new technology-related industries and employment opportunities.

The longer-term effect on employment remains uncertain and will depend on how successfully countries develop new skills and industries.

Key Takeaways

• AI investment is producing an unprecedented electronics export boom, led by Taiwan and South Korea.
• The benefits are uneven, with Indonesia and other less technology-focused exporters gaining comparatively little.
• Heavy dependence on semiconductors creates risks when the AI investment cycle eventually slows.
• El Niño could make food inflation the next major challenge, particularly in the Philippines and India.
• Higher costs are compressing corporate margins where businesses cannot fully raise prices.
• China’s exports remain strong, but domestic demand and property-sector confidence are weak.
• Beijing is expected to provide measured support rather than launch a large stimulus program.
• Businesses should assess individual sectors and countries rather than relying solely on headline GDP figures.

Meeting Presentation

260827 SEB – SwedCham APAC – Risk or Opportunity 27 Aug

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