The APEC region continues to expand despite a more
challenging global environment. Strong macroeconomic
fundamentals, technology-powered trade, and agile policy
responses are helping economies navigate heightened
geopolitical tensions. However, the outlook is becoming more
complex as higher energy prices, weather-related
disruptions, rising freight costs, geopolitical tensions and
persistent trade policy uncertainty increasingly weigh on
growth.
Growth remains resilient amid
challenges
Despite heightened global uncertainty,
APEC is expected to continue to grow by 3.2 percent in 2026
and 3.0 percent in 2027, although slightly lower than the
3.3 percent expansion in 2025. These forecasts are largely
unchanged from the May
edition of the APEC Regional Trends Analysis (ARTA),
suggesting that the underlying economic fundamentals have
remained broadly stable. While the near-term outlook shows a
modest slowdown, the headline numbers mask important
shifts.
Growth is increasingly supported by
technology-related trade, digital services and investment in
these sectors, even as traditional sources of momentum face
greater constraints. This resilience also reflects strong
macroeconomic fundamentals and economies’ ability to
respond to changing conditions through policy
measures.
Supply chain constraints and trade policy
uncertainty have eased recently, providing some relief to
businesses. Yet vulnerabilities, including trade-restrictive
measures, remain and continue to weigh on the
outlook.
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Ongoing geopolitical tensions have
contributed to higher energy prices, raising production and
transportation costs. These pressures are feeding into
international logistics, resulting in increased freight
costs across intra-Asia and extra-Asia routes. Even when
physical disruptions ease, higher fuel, insurance and
shipping costs can continue to affect the movement of goods
and raise costs throughout supply chains. At the same time,
warmer-than-normal conditions associated with El Niño could
affect agricultural output, putting upward pressure on food
prices.
Together, these pressures could create a more
difficult environment for businesses and consumers. Higher
energy, food and transportation costs can squeeze household
purchasing power, raise business costs and make investment
decisions more uncertain. If sustained, they could dampen
consumption and investment, slowing down economic
activity.
Inflation is Likely to Rise Before
Easing
Price pressures are expected to translate into
higher average inflation in APEC, from 2.4 percent in 2025
to 2.9 percent in 2026, before moderating to 2.5 percent in
2027.
The projected rise highlights the risk of a less
favourable combination of slower growth and renewed
inflationary pressures. Higher energy costs can feed
directly into fuel prices and indirectly into the cost of
producing and transporting goods. Weather-related
disruptions could aggravate the situation, reducing
agricultural production and raising food prices.
The
expected easing in 2027, however, suggests that some of
these pressures may prove temporary. Policymakers will
therefore need to balance price stability with support for
economic activity, particularly if growth momentum
weakens.
Trade and Digital Services Support Regional
Growth
Trade remains one of the brighter spots in the
region. The expansion recorded in 2025 continued into early
2026, driven mainly by technology products. During the first
quarter of 2026, merchandise exports and imports recorded
double-digit growth compared to year-ago levels. The value
of goods exports increased by 18.8 percent, while export
volumes rose by 10.8 percent. Import values increased by
10.2 percent, while import volumes rose by 11.1
percent.
The robust trade performance points to strong
underlying demand for goods, particularly those linked to
technology and digitalization. Technology investment has
become an important engine of regional growth, supporting
demand for electronics and other technology-related
products.
This strength provides a vital source of
momentum, although it also highlights a potential
vulnerability. When growth becomes increasingly concentrated
in specific sectors, it raises exposure to changes in
technology demand and investment cycles. For instance, it
remains uncertain whether the massive investments in AI will
deliver the expected returns. At the same time, geo-economic
developments and trade policy uncertainty could cloud the
outlook for technology-driven trade.
Meanwhile, the
services sector continues to contribute to regional growth,
particularly through the sustained expansion of digitally
delivered services. Latest data for 2025 shows exports and
imports of digitally delivered services reached USD1.8
trillion and USD1.5 trillion, respectively, equivalent to
around 70-75 percent increase from pre-pandemic levels. This
upsurge creates new opportunities for productivity and
growth as digital services enable businesses to participate
more fully in regional and global markets. Realizing these
opportunities will depend on continued investment in digital
infrastructure, connectivity and technology
adoption.
Overall commercial services trade, however,
grew at a slower pace in the first quarter of 2026 as gains
in travel, transport and goods-related services have
moderated from previous years. Commercial services exports
grew by 5.4 percent growth and imports by 6.9 percent,
compared with 7.5 percent and 7.1 percent, respectively, a
year ago.
Trade imbalances also persist across
economies, pointing to deeper structural differences in
production, competitiveness and domestic demand. Addressing
these imbalances requires policies that promote more
balanced and resilient growth rather than relying solely on
short-term adjustments.
Investment is
Shifting Toward Strategic Sectors
The
investment landscape provides another indication of how the
regional economy is changing.
Foreign direct
investment remains broadly stable, while greenfield
investment is growing. Importantly, greenfield investment is
becoming more concentrated in digital services, including
information and communication services, as well as
electronics and energy. Together, these sectors accounted
for 57.6 percent of global greenfield investments in 2025,
nearly 10 percentage points higher than five years
ago.
This concentration reflects the structural
transformation underway in APEC
economies.
Digitalization is creating demand for new
infrastructure and services, while the energy sector is
receiving greater attention amid changing energy needs and
security considerations. Electronics, meanwhile, remain
central to technology-driven production and trade. This
shift could support sustained growth if accompanied by
improvements in skills, infrastructure, connectivity and the
broader investment environment.
Extreme Weather Adds
to Economic Uncertainty
Risks to the economic outlook
extend beyond trade policy uncertainty and geopolitical
tensions.
Weather conditions are increasingly shaping
economic performance as extreme weather events can trigger
considerable negative effects on agriculture output and food
prices.
The region is expected to experience an
intensifying El Niño this year, with drought, heat stress
and flooding potentially dampening agricultural production.
So far, supplies of key agricultural products are seen to
remain broadly adequate. However, there is an observed
tightening in supplies of milled rice, oilseeds and
vegetable oils, which could heighten risks to food security
and exert upward pressure on food prices.
For
economies where food represents a significant share of
household spending, these developments can have important
implications. Lower agricultural output can raise food
prices, deplete real household incomes and increase pressure
on vulnerable households. Weather-related disruptions can
also affect trade flows as changes in domestic production
occur. These potential scenarios highlight how
weather-related shocks can spill over into the broader
economy through food prices, trade and household purchasing
power.
Bolstering Resilience for the Next Phase of
Growth
The near-term outlook points to a regional
economy that shows resilience but faces increasingly
interconnected risks. Four policy priorities can help
bolster economic resilience:
Accelerate
digital transformation. Expanding digital
infrastructure and connectivity while promoting technology
adoption can help economies capture productivity gains and
broaden participation in the digital
economy.
Deepen supply chain resilience.
Greater trade integration, open and rules-based
trade, and the use of digital platforms can improve supply
chain efficiency and reduce
vulnerabilities.
Strengthen food security and
agricultural adaptation. Investment in resilient
agriculture and early warning systems, coupled with
reinforced regional cooperation on disaster risk management,
can help economies prepare for weather-related
disruptions.
Mobilize regional investment for
growth. Improving the investment environment,
developing productive sectors and strengthening regional
policy dialogue can support investment and longer-term
productivity.
Looking Ahead
APEC faces an
increasingly complex global economic and policy landscape.
Growth is supported by strong trade, technology investment
and digitalization, while generally stable macroeconomic
fundamentals provide an important buffer against external
shocks.
Yet the risks are becoming more
interconnected. Geopolitical tensions can raise energy and
freight costs, weather-related shocks can affect food
production and inflation, and trade policy uncertainty can
amplify supply chain vulnerabilities. These pressures make
it critical for economies to strengthen their capacity to
absorb shocks while continuing to pursue
productivity-enhancing investment.
Beyond sustaining
growth, APEC needs to harness digital transformation and
other current sources of resilience to build a more
diversified, connected and stable economy over the long
term. Achieving this will require stronger regional
cooperation, continued investment in infrastructure and
skills, and policies that support broad-based growth and
strengthen the region’s capacity to navigate future
shocks.
Rhea Crisologo Hernando is analyst, Eldo
Simanjuntak is researcher and Carlos Kuriyama is director at
the APEC Policy Support
Unit.
