Morgan Stanley(US:MS)2025-11-25 05:06Summary of the 2026 Asia Economics Outlook Conference Call Industry Overview - The report focuses on the economic outlook for Asia, particularly the recovery from technology to non-technology sectors, highlighting the expansion of recovery across various industries [3][4][13]. Key Points and Arguments 1. Recovery Expansion: The recovery is broadening, with non-technology exports rebounding, leading to improved capital expenditure momentum and better labor market conditions, which in turn boosts consumption [3][4]. 2. GDP Growth Projections: - Asia's real GDP growth is expected to rise from 4.3% in Q4 2025 to 4.7% in Q4 2026 [3][35]. - Nominal GDP growth for Asia (excluding China) is projected to rebound from 5.5% in Q4 2025 to 7.2% in Q4 2026 [3][35]. 3. Inflation Trends: - Inflation pressures are expected to ease in 2026, with overall inflation in Asia (excluding Japan) projected to rise slightly but remain within central banks' comfort zones [3][4][49]. - In China, inflation is anticipated to improve moderately, with a complete exit from deflation expected by 2027 [3][4][51]. 4. Monetary Policy Outlook: Central banks are nearing the end of the rate-cutting cycle, with most expected to maintain rates steady in 2026, except for Australia, which may need further easing [4][35]. 5. Risks to Growth: - Upside risks include stronger private sector spending in the U.S. and faster-than-expected adoption of AI, which could enhance productivity [4]. - Downside risks involve a potential mild recession in the U.S. that could negatively impact non-technology exports in Asia [4]. Additional Important Insights 1. Technology vs. Non-Technology Exports: - While technology exports have been strong, they account for only about 25% of total exports, limiting their spillover effects on the broader economy [3][13]. - Non-technology exports, which make up 75% of total exports, are expected to benefit from easing trade tensions and monetary easing effects [3][4][13]. 2. Capital Expenditure: - The improvement in non-technology exports is anticipated to positively influence capital expenditure, with growth expected to rise to 3.7% in H1 2026 and further accelerate to 4.4% in H2 2026 [27][29]. 3. Consumer Spending: - A dual recovery in exports and capital spending is expected to enhance labor market conditions, leading to a rebound in previously weak disposable income consumption [31][33]. 4. Country-Specific Insights: - China: Expected to see real GDP growth improve but nominal GDP growth remains subdued due to ongoing real estate weakness [45]. - India: Projected to have the strongest nominal GDP growth in Asia, driven by tax cuts and improved consumer sentiment [45]. - Japan: Expected to maintain strong nominal GDP growth supported by expansionary fiscal policies [46]. - Korea: Anticipated recovery in consumption driven by improved real income and fiscal support [46]. - ASEAN: Economic performance is expected to be mixed, with Malaysia and Singapore benefiting from non-tech export recovery, while Indonesia and Thailand face challenges [47]. Conclusion The 2026 Asia Economics Outlook presents a cautiously optimistic view of the region's economic recovery, driven by a shift from technology to non-technology sectors, with significant implications for GDP growth, inflation, and consumer spending across various Asian economies [3][4][35].