By Rhea Crisologo Hernando, Glacer Niño A.
Vasquez and Carlos
Kuriyama
The February 2026
edition of the APEC Regional Trends Analysis
(ARTA)
points to a cautiously improved outlook for the
AsiaPacific region. Growth momentum has strengthened,
supported by resilient consumption, robust trade performance
and a surge in AIrelated investment. Yet even as
near-term prospects brighten, the report underscores that
underlying vulnerabilities are deepening, leaving
policymakers with the challenge of sustaining momentum while
managing rising mediumterm risks.
A
strengthening growth picture
Recent data indicate
that the APEC region expanded by 3.4 percent in the first
three quarters of 2025, with full-year growth estimated at
3.2 percent, slightly above the October
2025 ARTA projection. This upside reflects
stronger-than-anticipated performance in consumption, trade,
and investment, particularly in technology-intensive
sectors.
APEC growth is projected at about 3.1 percent
in 2026, broadly stable and modestly revised upward compared
with the earlier forecast of 2.9 percent. This resilience
stands out against a backdrop of persistent global
uncertainty, highlighting the region’s capacity to adapt
through flexible supply chains, diversified markets, and
continued innovation.
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Several factors underpin this
improved outlook. Household demand has held up well across
much of the region as cost-of-living pressures ease. Trade
activity remains robust despite rising protectionism, as
firms are rerouting trade flows, adjusting sourcing
strategies and diversifying markets. At the same time,
massive AIrelated and digital investments are supporting
aggregate demand while boosting productivity.
However,
large-scale AI investments also raise concerns about
concentration and profitability issues, which, combined with
prolonged uncertainty and renewed trade protectionism, could
heighten medium-term risks and lead to a deceleration in
APEC growth, currently projected to slow to 2.9 percent in
2027.
Policy space widens as inflation
eases
Inflation has continued to ease across most
APEC economies. Average inflation in 2025 is estimated at
around 2.4 percent, lower than the 2.6 percent recorded in
2024, reflecting softer energy and food prices. Oil prices
have declined amid ample supply and rebuilding inventories,
while food prices have moderated as agricultural output
improved.
This benign inflation environment has
allowed many central banks to maintain accommodative or
neutral policy stances, supporting domestic demand and
investment. Importantly, inflation expectations remain
broadly anchored, reinforcing policy credibility. That said,
risks to price stability persist, particularly from
potential supply shocks, renewed trade restrictions, or
geopolitical issues. Preserving strong institutions and
prudential oversight remain critical to maintaining
confidence as monetary conditions gradually
normalize.
Trade resilience amid
fragmentation
Trade performance exceeds expectations.
Merchandise trade volume doubled through the first three
quarters of 2025 to 8.0 percent for exports and 7.6 percent
for imports compared with 2024, supported by agile business
responses to shifting trade routes and sustained demand from
technologyintensive industries.
IntraAsia trade
has strengthened, reflecting deeper regional integration,
while extraregional trade has also improved, signaling
resilient external demand.
Commercial services trade
continues to expand, though at a softer pace than in
2024’s rapid rebound. Travel services, in particular,
eased from earlier doubledigit growth rates, while
transport and other commercial services provided steadier
support.
However, these positive trade dynamics
coexist with a less favorable policy environment.
Traderestrictive measures rose sharply in 2025, driven by
new tariff and nontariff actions. Although economies
continue to implement tradefacilitating measures, these
have been outweighed by new restrictions, intensifying
mediumterm headwinds. Trade policy uncertainty remains
elevated, weighing on business sentiment and investment
planning.
Current account surpluses and deficits have
remained persistent across APEC economies and have widened
since the early 2020s. These trends reflect structural trade
imbalances shaped by differences in savings, investment,
competitiveness and domestic demand. While such imbalances
can coexist with growth, prolonged surpluses or deficits
heighten exposure to external shocks and financial
volatility. Strengthening domestic demand and productive
investment in surplus economies, while improving
competitiveness, export diversification and savings rates in
deficit economies, can help sustain growth and reduce
imbalance-related risks.
Technology investment:
opportunity with risks
One defining feature of the
current cycle is the scale of investment in AI and digital
technologies. Global semiconductor billings hit record highs
in 2025, driven largely by AIrelated demand. These
investments could boost productivity and support
longerterm growth across the region.
At the same
time, risks are emerging. Investment has become increasingly
concentrated in a narrow set of technologies and sectors,
raising exposure to supplychain disruptions, geopolitical
risks, and the possibility that returns may fall short of
expectations. A lopsided investment pattern, overreliant
on AI as the primary engine of productivity, could increase
economic vulnerability if efforts to bridge the digital
divide and upgrade digital skills fail to keep
pace.
Downside risks and upside
opportunities
Despite stronger nearterm momentum,
downside risks remain considerable. Geopolitical tensions
and geoeconomic fragmentation continue to threaten supply
chains and the rulesbased trading system. Prolonged
policy uncertainty risks delaying private investment and
slowing productivity gains.
Nonetheless, there are
notable upside opportunities. The private sector has
repeatedly shown adaptability, allowing trade and production
networks to reconfigure quickly. Fasterthanexpected
productivity gains from AI, particularly if adoption spread
beyond frontier firms, could lift potential growth sooner
than assumed. A more synchronized easing of monetary policy,
especially among advanced economies, could further support
global demand and financial conditions.
Policy
priorities
Against this backdrop, the ARTA points to
three broad policy priorities for APEC
economies:
- Reinforcing credible economic
management. Easing inflation provides room to
support growth, but credibility is critical. Clear policy
frameworks and effective prudential oversight help anchor
expectations and reduce uncertainty. Strong institutions
matter to ensure coherent, credible and market-friendly
policies. Effective institutions are key to coordinating
policy, managing risks and adapting while preserving
trust. - Promoting inclusive,
productivityenhancing reform. AIdriven
investment should be paired with broader reforms such as
sustained investment in skills development, labor mobility,
competitive market structure and reliable infrastructure.
Broadening the base of productivity gains that ensures
technological progress translates into durable and inclusive
growth. - Strengthening adaptive regional
cooperation. In a fragmented global environment,
regional platforms matter more than ever. Deeper policy
coordination, better information sharing and institutional
agility can stabilize expectations and counter rising
uncertainty. APEC’s role in reinforcing predictability,
rebuilding confidence, fostering cooperation and anchoring
stability across the region remains
vital.
Looking ahead
The February 2026
ARTA shows that nearterm growth momentum in APEC has
improved, but this is not the time to be complacent.
Sustaining current gains will require policies that balance
support for demand with reforms that raise productivity and
resilience. By leveraging its diversity, adaptability and
cooperative frameworks, the APEC region is well-positioned
to navigate global transitions, provided that policymakers
act decisively to manage risks while seizing emerging
opportunities.
Rhea Crisologo Hernando is analyst,
Glacer Niño A. Vasquez is researcher, and Carlos Kuriyama
is director at the APEC Policy Support
Unit.
