Mid-Year review: Stronger growth on AI tailwinds, but divergence deepens

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Mid-Year review: Stronger growth on AI tailwinds, but divergence deepens

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Asia Economic Weekly

Mid-Year review: Stronger growth on AI

tailwinds, but divergence deepens

This week in focus 26 June 2026

Asian central bank actions remained in focus amid easing geopolitical risks and cautious GEM Fixed Income Strategy &

policy responses. In India, the RBI remained in a wait and see mode, keeping rates at Economics

5.25% against a volatile backdrop, with growth revised lower and inflation higher. In Asia

Japan, the BoJ’s June hike and hawkish inflation assessment contrasted with a more

cautious tone in the Summary of Opinions. In Malaysia, rising inflation signals and strong Table of Contents

trade data point to upside risks, but Bank Negara is likely to keep policy rates on hold for This Week in Focus 2

now. Outside of monetary policy, our China consumer survey pointed to improving

Asia in Focus 3

household spending in June despite weak official retail sales in May.

China in Focus 5

Asia: Stronger growth on AI tailwinds, but divergence Data Preview 7

deepens Macro Forecasts 9 Research Analysts 14

Thanks to strong 1Q26 outturns and a robust external demand outlook, we upgrade EM

Asia (ex. China) growth to 5.9% (vs. April projection of 4.9%) in 2026, and expand by

5.8% in 2027. That said, underlying this positive growth revision is wider divergence Helen Qiao

across tech exporters and non-exporters. Meanwhile, the region is also subject to ChinaMerrill&LynchAsia Economist(Hong Kong)

varying degrees of price stability challenges. Taken together, we now anticipate more helen.qiao@bofa.com

monetary policy tightening than in our previous projection and expect most regional Izumi Devalier

central banks to hike rates over the rest of 2026. JapanBofASEconomistJapan