Economic Growth - The European economy recorded modest growth of 0.3% in the last quarter of 2025, matching the previous quarter's figure, with a year-over-year growth of 1.3% compared to Q4 2024 [1] - Germany's economy showed improved growth at 0.3% in the quarter, marking its best quarterly performance in three years, although it still faces significant short- and long-term challenges [8] Tariff Impact - Moderate growth has persisted despite earlier recession fears linked to U.S. President Trump's threats to raise tariffs, which were ultimately capped at 15% on EU goods [2] - The assurance from the tariff deal allowed businesses to plan ahead, although the situation was complicated by subsequent threats from Trump regarding higher tariffs on EU member countries [3] Consumer Behavior - European services businesses have shown moderate growth, with lower inflation at 1.9% in December and rising wages contributing to increased consumer purchasing power and willingness to spend [4] Currency Fluctuations - The dollar has weakened significantly, falling 14.4% against the euro in the past year, which could make European exports less competitive in key markets [6][5] - Analysts suggest that continued dollar weakness may prompt the European Central Bank to consider cutting interest rates later this year to stimulate growth [7]

Summary of Key Themes for 2026 Industry Overview - **Region**: Asia Pacific - **Focus Economies**: China, India, Japan, Korea, Indonesia, Australia Key Themes General Asia - Recovery expected to broaden out to non-tech exports [2][7] - Nominal GDP growth forecast to improve from 4.9% in 4Q25 to 5.8% in 4Q26 [8][36] China - Divergence between macroeconomic challenges (deflation) and positive microeconomic developments [2][38] - Expected easing of deflationary pressures through a recovery in non-tech exports and market share gains [38][55] - Policymakers are focusing on cutting excess capacity and boosting domestic consumption to address deflation [48][60] - Population growth has turned negative, impacting demand in the property sector [39][41] India - Anticipated as a surprise turnaround story for 2026 with expected nominal GDP growth returning to double digits [2][82] - Concerns over rupee weakness and corporate revenue growth are seen as overblown [84][93] - Expected improvements in consumption and export growth, aided by a potential US-India trade deal [94][95] - Policy easing, including income tax cuts and interest rate reductions, expected to support consumer spending [95][107] Japan - Cautious approach from the Bank of Japan (BOJ) with moderate fiscal expansion expected to sustain nominal GDP growth [2][7] Korea - Broadening growth and continued reform renaissance anticipated [2][7] Indonesia - Capital expenditure (capex) cycle remains a drag on growth [2][7] Australia - Interest rates expected to end the year lower, not higher [2][7] Additional Insights - Non-tech exports recovery is crucial for Asia's economic momentum, driven by easing trade tensions and improving US domestic demand [18][25] - The expected recovery in non-tech exports will positively impact capex momentum, job creation, and wage growth [8][26][29] - The macroeconomic environment in Asia is expected to improve as disinflationary pressures ease, leading to stronger corporate revenue growth [36][93] Conclusion - The outlook for 2026 presents a mixed picture across Asia, with significant opportunities in India and challenges in China. The overall recovery is expected to broaden beyond the tech sector, supported by policy measures and improving economic conditions.

Summary of Key Points from the Conference Call Industry Overview - The report focuses on the **Chinese economy** and its outlook for **2026**, highlighting significant changes in trade and the property market, as well as the challenges of finding new growth engines in the economy [3][6][11]. Core Economic Insights - **Export Growth**: - China's export volume is expected to grow by **5%** in **2026**, following an **8%** growth in **2025**. This growth is supported by strong goods exports and policies promoting services exports [3][4]. - The current account surplus is projected to widen from **3.6%** of GDP in **2025** to **4.2%** in **2026**, exceeding consensus expectations [3][4][12]. - **Property Market**: - The property market is anticipated to continue its decline in **2026**, but its negative impact on GDP is expected to lessen as the sector's share of the economy has significantly decreased [3][4][35]. - New housing starts and property investment have dropped **50-80%** from their peaks in **2020-21**, indicating a prolonged downturn [35][37]. - **Labor Market**: - The labor market remains weak, with structural challenges such as job displacement due to AI and cyclical issues from the property downturn [3][4][42]. - The unemployment rate has not changed significantly, but hiring has been depressed, leading to a slowdown in urban nominal wage growth to **3.8%** in Q3 [42][44]. - **Consumption Trends**: - Household consumption growth is expected to moderate to **4.5%** in **2026**, down from **4.8%** in **2025**, due to a weak labor market and declining house prices [53][54]. - Government consumption is projected to increase to **5.0%** in **2026**, offsetting weaknesses in private consumption [54][55]. Investment Outlook - **Investment Growth**: - Gross fixed capital formation growth is expected to rebound from **1.5%** in **2025** to **3.5%** in **2026**, supported by government policies aimed at stabilizing investment [3][4][64]. - Infrastructure and services-related investments are likely to see significant growth, while property investment may continue to contract by **12%** in **2026** [64][65]. Inflation and Monetary Policy - **Inflation Projections**: - CPI inflation is expected to rise from **0%** in **2025** to **0.6%** in **2026**, while PPI inflation is projected to improve from **-2.6%** to **-0.7%** [5][72]. - The gradual reflation process is anticipated, with inflationary pressures expected to remain subdued [69][70]. - **Monetary Policy**: - The People's Bank of China (PBOC) is expected to adopt a cautious approach to monetary easing, with potential rate cuts and fiscal measures to support economic growth [77]. Additional Insights - **Current Account Dynamics**: - The current account surplus is expected to increase, driven by structural growth in high-tech manufacturing exports and a focus on self-reliance amid geopolitical tensions [27][30]. - **Long-term Economic Transition**: - The transition from a property and infrastructure-driven economy to one focused on consumption and services is still in its early stages and may take years to fully realize [11][12]. - **Government Initiatives**: - Recent government policies, including a consumer goods trade-in program, aim to stimulate consumption but may only provide short-term support [57][58]. This summary encapsulates the key points discussed in the conference call regarding the outlook for the Chinese economy in 2026, highlighting both opportunities and challenges across various sectors.

Core Viewpoint - German exporters are expected to face continued weakness in their two largest markets, the United States and China, with little prospect for recovery in 2026 [1] Group 1: Export Projections - Exports to the U.S. are projected to decline by more than 7% to just under 150 billion euros ($156 billion) in 2025 [2] - Exports to China are expected to contract by 10% to 81 billion euros [2] Group 2: Trade Barriers and Structural Challenges - U.S. tariffs on EU goods have created a significant burden on margins for German exporters, acting as "sand in the gears of transatlantic trade" [3] - Germany faces structural challenges such as a strong euro, high energy costs, excessive bureaucracy, and weak investment [3] Group 3: Impact of China's Industrial Policies - China's industrial policies favoring domestic producers have reduced demand for German goods, particularly in the automotive, mechanical engineering, and chemicals sectors [4] - German companies are increasingly localizing production within China or shifting investments to other Asian markets, which stabilizes global sales but results in fewer exports from Germany [4]

Trade Deficit and Economic Impact - Thailand experienced a trade deficit of $2.73 billion, surpassing the forecast of $1.36 billion, marking the largest gap since January 2023 [1][3] - Exports grew by only 7.1%, falling short of estimates, while imports surged by 17.6%, exceeding expectations [2][3] Currency Strength and Competitiveness - A sustained trade deficit poses risks to Thailand's economic growth, as a stronger baht diminishes export competitiveness [3] - The baht reached its strongest level against the US dollar in over four years, attributed to a rally in gold prices, raising concerns among authorities [6][7] Export Performance - Thai shipments to the US, the largest export market, increased by 38% year-on-year to $6.47 billion, driven by demand for electronic products and parts [4] - Shipments of electronic products surged by 157% from the previous year, totaling $5.24 billion [4] Government Actions and Trade Relations - Prime Minister Anutin Charnvirakul is working to enhance trade terms with the US while managing diplomatic relations, particularly regarding a peace deal with Cambodia [5] - The government is cautious about the strong baht's impact on key exports, especially in the agricultural sector [7]

Group 1 - Japan's exports increased by 6.1% year-on-year in November, surpassing market expectations of a 4.8% rise, following a 3.6% increase in October [1] - Exports to the United States rose by 8.8% in November, marking the first increase in eight months, while exports to China decreased by 2.4% [2] - Japan recorded a trade surplus of 322.3 billion yen ($2.08 billion) in November, significantly higher than the forecast of 71.2 billion yen [2] Group 2 - Japan's economy contracted in the third quarter due to declining exports influenced by U.S. tariffs, but analysts anticipate a rebound in growth for the current quarter [3] - The impact of higher tariffs was less severe than expected, as Japanese exporters managed to absorb the costs, supported by a weaker yen [3] - A trade agreement between the U.S. and Japan, formalized in September, reduced tariffs on U.S. imports from Japan, contributing to improved market sentiment [4] Group 3 - The Bank of Japan (BOJ) is expected to raise its short-term policy rate to 0.75% from 0.5% in the near term, although the future pace of rate hikes remains uncertain [5] - A recent survey indicated that business sentiment among large Japanese manufacturers reached a four-year high in the three months leading to December [4]

Trade Performance - South Korea's exports remained solid in November, signaling resilience amidst global protectionism [1]

Summary of the 2026 China Economics Outlook Industry Overview - **Industry**: Chinese Economy - **Focus**: Economic growth, inflation trends, fiscal policy, and investment dynamics Key Points Economic Growth Projections - **Nominal GDP Growth**: Expected to be subdued at **4.1%** in 2026, with a rebound to **4.8%** in 2027 [3][10][11] - **Real GDP Growth**: Projected at **4.8%** in 2026 and **4.6%** in 2027, down from approximately **5%** in 2025 [10][11] - **CPI and Deflation**: CPI is expected to remain low due to property market drag and weak wage growth, with a gradual shift from deflation to lowflation anticipated by 2027 [4][80] Inflation Dynamics - **GDP Deflator**: Expected to be **-0.7%** in 2026, turning slightly positive at **0.2%** in 2027 [80] - **CPI Trends**: Core CPI is projected to remain subdued until **2H26-2027**, with gradual improvements expected as property market pressures ease [80][82] Policy and Fiscal Measures - **Fiscal Policy**: Modestly expansionary with an augmented fiscal deficit expected to widen by **0.5ppt** of GDP, focusing on technology localization and infrastructure [5][55] - **Monetary Policy**: Anticipated policy rate cuts of **10-20bps** and RRR reductions of **25-50bps** in 2026 to support fiscal measures [59] - **Public Spending**: Shift towards public services with growth in public consumption expected to reach **5.3%** in 2026 and **5.5%** in 2027 [25][26] Investment Trends - **Investment Growth**: Real gross fixed capital formation growth projected to remain soft at **2.4%** in 2026 and **2.2%** in 2027, influenced by anti-involution policies and local government financing constraints [31][32] - **Manufacturing Investment**: Expected to grow at low single digits due to overcapacity and deflationary pressures [33][36] - **Property Sector**: Continues to face significant challenges with high inventory levels and weak demand, leading to a contraction in property investment [35][41] Consumption Patterns - **Household Consumption**: Expected to slow to **4.2%** in 2026, with a rebound to **4.4%** in 2027 as labor market conditions improve [15][19] - **Social Welfare Spending**: Gradual increases in social welfare spending anticipated, focusing on education, healthcare, and elder care [18][25] Risks and Challenges - **Economic Risks**: Potential for renewed trade tensions and a US recession could exacerbate supply-demand imbalances and deflationary pressures [6] - **Implementation Challenges**: Central government support for housing may face practical challenges in execution [5][56] Global Context - **Export Dynamics**: Net exports expected to contribute **1.3ppt** to growth in both 2026 and 2027, despite a slight moderation in export growth due to earlier front-loading effects [41][42] - **Global Demand**: Stable global growth projected at **3.1%** in 2026 and **3.3%** in 2027, supporting China's export resilience [43] AI and Technology Investment - **AI-Driven Growth**: Anticipated capex boom in AI-related sectors expected to offset property market drag by **0.2-0.3ppt** of real GDP in 2026-27 [47][48] Conclusion - The outlook for the Chinese economy in 2026 reflects a cautious approach to growth, with a focus on gradual rebalancing and addressing deflationary pressures while navigating global uncertainties and domestic challenges [68][79]

Industry Trend - German exporters are increasing investments in new projects in China, despite government warnings [1] - These investments are deepening the economic ties between German exporters and China [1]

Trade Performance - Thailand's exports experienced the most significant increase in three years during September [1] - The export growth occurred despite tariffs imposed by US President Donald Trump [1]