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OECD Sees AI Boosting Asia as Growth Diverges Across Major Economies

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OECD Sees AI Boosting Asia as Growth Diverges Across Major Economies

Growth across Asia's major economies is set to diverge further, with India retaining a strong lead, China's expansion slowing, and Japan remaining subdued, according to the OECD's September 2026 Interim Economic Outlook.

India's economy is projected to grow 7.1% in fiscal 2026-27, before moderating to 6.5% in fiscal 2027-28, following 7.8% growth in fiscal 2025-26.

The OECD expects weaker purchasing power to weigh on growth in the second half of 2026, before activity gradually recovers in 2027.

China's growth is forecast to slow to 4.5% in 2026 from 5.0% in 2025 and ease further to 4.2% in 2027.

The OECD expects rising inflation to weigh on consumption, while government efforts to curb excessive capacity are likely to restrain investment growth.

Japan is expected to remain the slowest-growing of the four economies, with growth easing from 0.8% in 2026 to 0.7% in 2027.

Strong business investment, robust corporate profits and government consumption should support activity, but rising policy rates and higher energy import costs are expected to offset some of that strength.

South Korea stands apart from Japan, with growth projected at 3.7% in 2026 before moderating to 2.6% in 2027.

Strong industrial production and exports are expected to drive expansion this year, while softer private consumption will weigh on growth next year.

Japan and South Korea, major semiconductor producers, have benefited from stronger technology exports, while China has also seen a boost from technology-related shipments.

Inflation is also expected to move along different trajectories. China's headline inflation is projected to rise from 1.4% in 2026 to 1.9% in 2027, while India's is expected to ease from 4.7% to 4.2%.

Japan's inflation is forecast to rise from 1.8% to 2.6%, while Korea's is projected to ease from 3% to 2.7%.

The OECD expects further rate increases in Japan as policy accommodation is withdrawn, with additional modest hikes also projected in Korea.

India is expected to raise rates temporarily to counter stronger inflation pressures, while China is expected to keep policy rates low.

The OECD warns that prolonged disruptions to Middle Eastern energy supplies could weigh particularly heavily on Asia-Pacific economies, while a weaker-than-expected payoff from AI investment could hit technology production, trade and investment across the region.

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