EM Asia K-Shaped Recovery: Tech Exports to Lead Regional Economic Divergence in 2026, with India Lagging

Despite external shocks and tariff threats, emerging (EM) Asia experienced strong real growth in 2025, with exports as a key engine to growth across Asia, except India and Indonesia. But not all exports are created equal, non-tech exports underperformed tech exports by a wide margin. From the decline of oil prices to weak consumption by lower income bracket in developed markets and higher tariffs on non-exempt sectors thanks to sectoral and reciprocal tariffs, divergence in performance characterized both export growth within country and across countries in EM Asia. Topping regional growth in 2025 was Vietnam, driven by the highest export growth rate in Asia. Southeast Asia, for the most part experienced rapid export growth, especially those with higher tech shares.In Asia, Singapore, Vietnam, Malaysia, Thailand and South Korea have the highest share of GDP exposure to tech exports, respectively. Inversely, India has the lowest, followed by Indonesia. When energy prices fell and tech price increase, India recorded the weakest export growth in Asia at +1% due to the decline of refined oil exports as well as underperformance of non-tech exports. Given that tech is such a small share of overall exports and GDP, it did not lift neither even if that expanded. Indonesia energy dependency and low tech share also affected its aggregate export performance even if tech and non-tech grew.As global demand is expected to weaken in 2026, the semiconductor sector's steady growth, fueled by AI-driven supply shortages, is anticipated to prop up tech-driven export growth in the first half of the year. The U.S. economy, supported by capex and higher income consumption, skews Asian export growth towards tech and ICT products rather than essentials. Although some commodities are experiencing a rebound, economies dependent on energy exports continue to struggle, particularly those where commodity prices have fallen, like natural gas and coal. As such, the cyclical nature of the tech sector will perpetuate differences in growth outcomes among Asian economies into H1 2026.We expect the divergence in sectoral performance to impact not just export growth in the region but also central bank and fiscal reaction functions in H1 2026. Economies such as Vietnam, Singapore, South Korea, and Malaysia are expected to benefit more significantly compared to those with lower tech exposure, such as India and Indonesia. For economies with fast export growth, such as Singapore, Vietnam and South Korea, central banks are done easing in 2026 and will start taking a much more hawkish tone in 2026 as tech exports propel growth higher. Moreover, these are also economies where the fiscal support will be strong in 2026, especially Vietnam and South Korea, leading to the need for less monetary support.With softening export performance due to its reliance on energy, Indonesia fiscal policy will step up to shore up demand. Rising nickel prices may provide some relief, but overall shipments are likely to remain subdued in the first half of 2026. Bank Indonesia is expected to maintain its current policy stance due to stronger fiscal impulse and a soft rupiah. India export income flows will also underperform in H1 2025 due to low tech exposure in merchandise export as a share of GDP, compounded by a 50% tariff imposed by the U.S. and a slowdown in tech service exports. The government has responded with GST tax cuts on certain items, but this has negatively impacted revenue generation. With fiscal policy support focused on easing regulations and taxes, rather than spending increases, the Reserve Bank of India (RBI) is expected to cut rates by 25bps in Q2.The silver lining for India is that reforms are accelerating, such as implementation of the labor code rationalization and a potential EU-India Free Trade Agreement, offer hope. Additionally, reductions in Russian oil imports may pave the way for favorable trade agreements with the U.S. Finally, India’s domestic demand driven economy is likely more shielded when the tech cycle sags.