AI goods drive 80% of Asia's export growth as Japan, India and Indonesia miss out - Capital Economics
AI-related goods have generated about 80% of Asia's recent export growth, but Indonesia, Japan and India are largely missing out, Capital Economics said in a note on November 10.
Every Asian economy whose exports have grown by at least 20% y/y over the past three months owes most of that growth to AI-related goods, according to the London consultancy's estimates. Three of the region's five largest economies - Indonesia, Japan and India - are the exceptions, with export growth well below the rest because they are not shipping much of the hardware that data centres need.
Asia's ability to ride out the Iran war energy shock has rested on that hardware. The same consultancy argued in October that the AI export boom had shielded the region from the oil price spike far better than expected, moving Asia's main risk from the oil market to the technology cycle. A boom concentrated in a handful of chip and server exporters leaves the region's biggest consumer economies without the cushion, and leaves the winners exposed if spending on AI slows.
Taiwan takes the lion's share
Taiwan is the largest beneficiary. AI-related trade has added around 7 percentage points to its real GDP growth over the last four quarters, according to Capital Economics. The island reported its fourth straight quarter of double-digit growth on October 30, with GDP up 14.36% y/y in the third quarter, the longest such run since 1987, Bloomberg reported.
South Korea's gain is smaller than its headline export figures suggest. Most of the jump in the value of Korean exports comes from higher prices rather than larger volumes, so the boost to real GDP has been about 1.5 percentage points over the same period, according to the note.
The price effect is visible in the monthly data. South Korean exports rose 93.7% y/y to a record $115.3bn in October, with semiconductor sales up about 259% to $56.4bn, according to trade ministry figures released on November 1. Part of the jump is calendar: the autumn holiday fell in September this year, giving October two more working days than a year earlier. In September the country posted a record $61.5bn current account surplus, and it overtook Japan to become the world's fifth-largest exporter in the first half on demand for memory chips.
China is riding the same wave. Its semiconductor exports rose 137.1% y/y in October and imports of automatic data processing machines and parts jumped 261%, according to an ING note, as total exports grew 35.2% and the trade surplus passed $1 trillion for the year to date. Capital Economics' definition of AI-related goods takes in power equipment and other supporting infrastructure as well as computing hardware, and those two categories make up nearly half of China's AI-related exports. However, nearly all of this year's increase came from computing equipment as chip prices surged.
Not all of the gain is real
Some of the export growth flatters the economies recording it. Hong Kong's imports of AI-related products have risen as fast as its exports, because its tiny manufacturing sector means most of what it ships is re-exported. Its trade balance in AI-related goods has barely moved.
In most of Southeast Asia, any AI-related improvement in the trade balance has been swamped by the higher cost of energy imports since the Iran war began. Singapore, Taiwan, Malaysia and South Korea are the exceptions: all four are large net energy importers, yet their trade balances have improved sharply this year.
The risk of a bust
The concentration is also the region's main vulnerability. Capital Economics expects AI-related investment to slow next year and fall outright in 2028, which would slow Taiwan's growth sharply in 2027. It forecasts a more modest slowdown in Singapore, South Korea and Malaysia.
Oxford Economics put numbers on the exposure in a November 9 research briefing. Counting the domestic value added embedded in US imports of AI-related goods, Taiwan's exposure comes to about 19% of GDP, Vietnam's to close to 6% and that of Malaysia, Thailand and South Korea to around 2%. The rise in US imports of AI-related goods is an order of magnitude larger than the increase in IT imports during the 1998-2000 dotcom bubble, and when that bubble burst in 2001, US imports of IT goods from emerging markets collapsed, according to the briefing.
For the economies that missed the boom, a bust would hurt less. For Taiwan, where AI now drives both exports and a surge in domestic investment, the cycle has become the economy.
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