The economic growth of the Asia-Pacific region is projected to decelerate from 4.3% in 2025 to 4.2% in 2026 and further down to 3.6% in 2027. However, this decline would have been more pronounced without the boost from artificial intelligence (AI), according to a report by Moody’s Analytics.

Analysts characterize the Asia-Pacific economy as operating at "two speeds." The demand for AI infrastructure is bolstering exports and manufacturing, while inflation and strict monetary policies are hindering other sectors of the economy.

AI Fuels Export Growth

Countries involved in the production of semiconductors, memory, and other AI-related equipment have emerged as the primary beneficiaries. In the first half of the year, South Korea's exports reached $496.7 billion, marking a 48.4% year-on-year increase. Semiconductor shipments surged by 162.6% to $192.4 billion, surpassing last year's annual record within just six months.

The trade in information and communication technology products saw even more dramatic changes. South Korea's ICT exports hit a record $253.9 billion, up 120.5%, with semiconductors and SSDs accounting for 83.7% of this figure. The country’s Ministry of Trade attributed this growth to the rising global investments in AI servers and infrastructure.

Meanwhile, Taiwan's exports for January to June increased by 47.1%, reaching $416.6 billion. According to the country's statistical office, GDP for the first half of the year grew by 14.15%. The government has raised its growth forecast for 2026 to 11.05%.

Research from Nikkei and Mitsubishi UFJ Research and Consulting indicated that for the first time, South Korea and Taiwan's exports simultaneously surpassed Japan's figures, which stood at around $384.4 billion, as reported by Seoul Economic Daily.

Singapore also benefited from AI demand, with non-oil electronic exports rising by 105.1% year-on-year in June. Integrated circuit shipments increased by 115.4%, with Enterprise Singapore linking this growth to sustained demand for AI products.

Export Strength Masks Weak Domestic Demand

Robust export figures are concealing a less favorable situation within the region, as noted by Moody’s Analytics. Many economies are experiencing domestic demand that remains below pre-pandemic trends and global averages.

High energy and food prices are adding further pressure, accelerating inflation and reducing real incomes. This situation presents a dilemma for central banks. While high inflation calls for tighter monetary policies, raising interest rates further dampens already weak consumption and investment. Moody’s estimates that, as a result, regulators in the region are tightening conditions relatively moderately in 2026.

Exceptions are present in economies directly benefiting from the technology cycle. Analysts anticipate that the AI boom will accelerate growth in Taiwan and South Korea in 2026, even amidst a general slowdown in the Asia-Pacific region.

This disparity is also observable within individual countries. In Taiwan, the high-tech sector has emerged as a key driver of economic growth; however, the benefits have not been evenly distributed across the high-tech, service, traditional sectors, and small businesses.

AI Boom Presents Risks

The region's reliance on technology exports makes it sensitive to shifts in the investment cycle. Moody’s believes that while AI currently compensates for weaknesses in other parts of the economy, signs of a potential pause are emerging.

Analysts pointed out rising electronics prices and local shortages of certain types of equipment. Concurrently, a rally in technology stocks has driven their valuations to record levels.

The risk is particularly pronounced in South Korea, where memory manufacturers have significantly benefited from increased AI spending. If investments in data centers, servers, and accelerators slow down, the export momentum could weaken, diminishing one of the key supports for the economy.

Additionally, high energy prices and expensive capital could further strain operations in data centers and the financing costs for infrastructure projects.

Moody’s assesses the risks to its baseline forecast as predominantly negative. Among the threats identified are prolonged energy shocks, new trade restrictions, corrections in financial markets, and a sharp cooling of the AI boom.

Earlier, the Bank for International Settlements noted that the investment activity surrounding artificial intelligence, which bolstered the global economy in 2025, is becoming a source of macro-financial risks.

In June, analysts from the organization warned of the financial risks associated with the AI boom.