Under the Banyan Tree by HSBC Global Research Fred's economics outlook for 2026
Dec 4, 2025
This discussion dives into the surprising resilience of Asian trade in 2025, despite anticipated declines due to tariffs. The AI boom is spotlighted for boosting exports, particularly in chips and components. A K-shaped recovery reveals a growing wealth gap, with struggling domestic consumption juxtaposed against rising exports. China faces a paradox of high exports and weak domestic demand, while India showcases quirks in its growth story. Japan's tightening cycle shows how it's navigating inflation and wage increases amidst a different economic landscape.
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Record Trade Fueled By AI Hardware
- Global trade volumes hit record levels in 2025, especially across Asia driven by more than just tariff front-loading.
- A major driver was the AI hardware boom, which pulled chips, cabling, cooling and other components from Asia into rapid investment cycles.
K-Shaped Recovery Across Asia
- Asia shows a K-shaped recovery where narrow export winners prosper while broader domestic demand remains sluggish.
- Strong export firms boost headline GDP but do not generate broad hiring or widespread consumer strength.
Policy Shift From Infrastructure To Social Support
- Policymakers face a dilemma: strong headline growth with benign inflation points toward rate cuts but uneven gains push fiscal policy toward targeted social spending.
- Governments are shifting from infrastructure to household-focused measures like vouchers and expanded social security.