Why South Korea Is Staging A K-shaped Economic Recovery

ING

Forex

Economic

Summary:

December exports accelerated thanks to strong demand for Korean IT products

South Korean exports rose a greater-than-expected 13.4% year-on-year in December (vs 8.4% in November, 8.5% market consensus). Of the 15 main export products, six increased. IT exports were particularly strong. Semiconductors rose the most -- by 43.2% -- thanks to robust demand for AI data centres and strong pricing. Other IT products, such as mobile devices (24.7%), computers (36.7%), and displays (0.8%), all increased. Yet autos, petrochemicals, steel, home appliances, and batteries declined. Automotive exports declined by 1.5% due to increased overseas production and temporary product cuts during line maintenance. Steel and petrochemicals continued to decline due to global oversupply and soft prices. Though not major export categories, newly emerging sectors -- primarily K-culture-related products such as food, bio-health, and cosmetics -- posted steady increases.

We expect IT- and K-culture-related products to remain the key drivers of exports in 2026. Despite recent concerns about AI overvaluation, global tech capex is expected to increase. Export items facing global oversupply are expected to undergo industry consolidation and are unlikely to rebound anytime soon.

Meanwhile, imports rose 4.6% YoY in December. Energy imports declined by 6.8% while non-energy imports rose firmly by 7.3%. We believe that increased capital goods imports will boost equipment investment in the current quarter. The trade surplus widened to $12.2 billion in December, likely boosting fourth-quarter 2025 GDP growth.

Tech exports will lead the overall recovery in exports

Source: CEIC and ING estimates

While sentiment indicators remain favourable, some risks are taking shape

The consumer confidence index slipped to 109.9 from 112.4, but remained above the long-term average. We believe recent KRW depreciation and a sudden stock market correction dampened sentiment. Inflation expectations remain steady at 2.6% for the third consecutive month, indicating no immediate concerns. Yet if the KRW remains around 1,450, both sentiment and activity will likely be affected.

Meanwhile, expectations on housing prices rebounded again. This should concern policymakers. Although strict macroprudential regulations are in place, housing demand in Seoul remains strong, resulting in a K-shaped housing market.

Recent business surveys similarly point to a K-shaped recovery, with manufacturing improving and non-manufacturing deteriorating. The manufacturing purchasing managers' index rose to 50.1, while the business survey index (BSI) outlook also advanced to 95.3 from 93.9 in November. Korean manufacturers are mostly export-oriented. As such, a de-escalation of trade tensions and weaker KRW may work in favour of sentiment. However, the domestically oriented non-manufacturing outlook declined substantially to 87.8 from 91.7. This likely reflects a slowdown in domestic demand as the impact of fiscal stimulus dissipates.

FX and housing are expected to be primary factors affecting policy decisions

Throughout December, the FX authorities implemented nearly fifteen measures aimed at stabilizing the Korean won. The USDKRW is significantly lower following verbal intervention and smoothing operations in the last week of the year. We don't think it has altered the underlying trend of the KRW weakness. While the upside remains limited by intervention concerns, strong USD funding needs should keep USDKRW above 1,425.

FX relief measures announced in December

Source: BoK, FSC, FSS, MoEF, etc.

Recent measures to cool Seoul's property market include tightening loan limits, designating the city a speculative zone with residency conditions, and accelerating urban renewal to increase supply. Since the steps taken on 15 October, housing transactions have declined overall, except in high-activity areas like Gangnam and southern Seoul. We believe stricter rules may temporarily slow down activity, but upward price pressures persist. Although some favour higher property taxes to curb demand, such measures are unlikely to be implemented before June's local government elections. Instead, the government might relax redevelopment rules and lower transaction taxes.

Seoul housing prices are still on the rise

Source: CEIC

Weak KRW added inflationary pressures

Korea's consumer price inflation eased slightly to 2.3% YoY in December (vs 2.4% in November, 2.3% market consensus). Weak fresh food prices lowered overall inflation, but petrol prices rose meaningfully, mainly due to higher import costs.

Going forward, we expect CPI to drop below 2% in the first half of 2026 mainly due to a high base last year. Still, the Bank of Korea is likely to keep policy rates unchanged at 2.5% in 2026 amid expectations of rising property prices in the Seoul area and the continued weakness of the KRW. Instead, the BoK will seek to expand the role of the Bank Intermediated Lending Support Facility as its favoured monetary policy instrument.

Inflation stayed above 2% in December, but expected to drop below 2% in 1H26

Source: CEIC and ING estimates

Source: ING

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Henry Thompson

Japan's manufacturing activity stalled in December as demand declined at a slower pace from the previous month, a private-sector survey showed, ending a five-month streak of deterioration.

The S&P Global Japan Manufacturing Purchasing Managers' Index (PMI) was flat at 50.0 in December, improving from 48.7 in November and hitting the break-even point separating expansion from contraction.

"Japan's manufacturing industry saw conditions stabilise at the end of the year," said Annabel Fiddes, an economics associate director at S&P Global Market Intelligence.

The decline in new orders in December was the softest since May 2024, the survey showed. Although many firms noted subdued demand, some saw sales had improved, underpinned by new projects and stronger-than-expected customer spending.

While consumer and investment goods sectors reported improvement in business conditions, intermediate goods makers said they were weak.

New export orders declined at a slightly softer pace in December from November, partly affected by weaker demand in Asia, particularly for semiconductors, according to the survey.

Looking ahead to the next 12 months, overall business sentiment eased from November but remained above the survey's long-run average, the survey said.

"New product releases and greater demand across key industries such as autos and semiconductors were anticipated to boost the sector's performance in 2026," Fiddes said.

Some downside risks mentioned by firms were sluggish global economy, an ageing population and rising costs, she said.

Staffing levels in the manufacturing sector rose for the 13th consecutive month, while the rate of input prices accelerated to its highest since April, battered by a combination of increases in raw material, labour and transportation costs as well as the weaker yen.

The Bank of Japan in December raised interest rates to levels unseen in 30 years and signalled its readiness to continue raising rates.

Source: Investing

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Thomas

The Guinea-flagged oil tanker MT Bandra, which is under sanctions, is partially seen alongside another vessel at El Palito terminal, near Puerto Cabello, Venezuela December 29, 2025. REUTERS/Juan Carlos Hernandez/File Photo/File Photo

Venezuela interim government says it is united behind Maduro
Trump says US embargo on Venezuelan oil remains in full effect
OPEC+ keeps oil output steady amid turmoil among members
Rights groups say 16 dead in Iran during week of protests

SINGAPORE, Jan 5 (Reuters) - Oil prices inched up on Monday as investors weighed whether political upheaval in OPEC member Venezuela would disrupt shipments after U.S. President Donald Trump seized Venezuelan President Nicolas Maduro, in a well supplied market.

Brent crude futures rose 17 cents to $60.92 a barrel by 0024 GMT, paring earlier losses, while U.S. West Texas Intermediate crude was at $57.43 a barrel, up 11 cents.

The United States snatched Maduro from Caracas at the weekend. Trump said Washington would take control of the oil-producing nation and that the U.S. embargo on all Venezuelan oil remained in full effect.

The U.S. strike on Venezuela to extract the country's president inflicted no damage on the country's oil production and refining industry, two sources with knowledge of operations at state oil company PDVSA said at the weekend.

In a global market with plentiful oil supply, analysts said any further disruption to Venezuela's exports would have little immediate impact on prices.

"We see ambiguous but modest risks to oil prices in the short-run from Venezuela depending on how U.S. sanctions policy evolves," Goldman Sachs analysts led by Daan Struyven said in a January 4 note, keeping its 2026 oil price forecasts unchanged.

Helima Croft, RBC Capital's head of commodities research, said: "Certainly, we think full sanctions relief could unlock several hundred kb/d of production over a 12-month period in an orderly transition situation."

"However, all bets are off in a chaotic change of power scenario like what occurred in Libya or Iraq," she added.

A top Venezuelan official declared on Sunday that the country's government would stay unified behind Maduro.

The Organization of the Petroleum Exporting Countries and their allies, together called OPEC+, decided to hold their output on Sunday.

Analysts are also watching Iran's reaction after Trump threatened on Friday to intervene in a crackdown on protests in the OPEC producer, ratcheting up geopolitical tensions.

At least 16 people have been killed during a week of unrest in Iran, rights groups said on Sunday, as protests over soaring inflation spread across the country.

Reporting by Florence Tan; Editing by Jamie Freed and Sonali Paul

Source: Reuters

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Olivia Brooks

Political

Danish Prime Minister Mette Frederiksen warned President Donald Trump to stop threatening to acquire Greenland just a day after the U.S. carried out a military operation that captured Venezuelan leader Nicolas Maduro.

"The Kingdom of Denmark — and thus Greenland — is part of NATO and is therefore covered by the alliance's security guarantee. We already have a defense agreement between the Kingdom and the United States today, which gives the United States wide access to Greenland," Frederiksen said Sunday, in a statement.

"I would therefore strongly urge the United States to stop the threats against a historically close ally and against another country and another people who have said very clearly that they are not for sale," she said.

The warning from Frederiksen comes after Trump was quoted by The Atlantic magazine, saying, "We do need Greenland, absolutely."

Trump ordered a military operation over the weekend that captured Venezuelan President Nicolas Maduro and his wife. The pair has been brought to the U.S. on drug-related charges.

The operation came after months of U.S. military buildup and threats against Venezuela, which the Trump administration claims is complicit in trafficking drugs to the U.S.

The move to topple Maduro led to speculation that Trump's other territorial ambitions could be obtained by force.

Katie Miller, the wife of top White House aide Stephen Miller, posted to X a map of Greenland covered with an American flag with the caption "SOON," shortly after Maduro was captured.

Trump has long mused about acquiring Greenland, the mineral-rich and self-governing territory of Denmark. Last month, he appointed Louisiana's GOP Gov. Jeff Landry special envoy to Greenland. Trump has also openly spoken about making Canada, an independent nation, the 51st state of the U.S.

Greenland and Canada have both repeatedly rebuked Trump's advances.

Source: CNBC

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Olivia Brooks

Political

Commodity

Economic

President Donald Trump's administration will seek to influence Caracas' policy decisions rather than take over the administration of Venezuela, US secretary of state Marco Rubio said Sunday, walking back Trump's assertion a day earlier that the US would "run" Venezuela.

Trump meant to say the US would run Venezuela's policy, Rubio said Sunday on NBC's Meet the Press television show. "We want Venezuela to move in a certain direction because, not only do we think it's good for the people of Venezuela, it's in our national interest." The US will maintain its "oil blockade" against Venezuela to maintain leverage, Rubio said.

Trump on Saturday said the US would temporarily "run" the Venezuelan government and seek to overhaul its oil sector, hours after he ordered a large-scale military assault that resulted in the capture of Venezuela president Nicolas Maduro. Trump made the claim in a press conference to explain his decision to send in US special forces to arrest Maduro, who has been transported to a US detention facility in Brooklyn, New York.

Events on the ground do not corroborate Trump's claim that the US has asserted control over Venezuela's government. Venezuela's Supreme Court confirmed vice president and energy minister Delcy Rodriguez as the country's interim president on Saturday. Rodriguez in a televised interview called for Maduro's release.

Interior minister Diosdado Cabello — who holds considerable control over the military — said in a video online that he does not recognize Rodriguez as the interim president. Internal divisions between Maduro's administration officials could increase the chances of violence and destabilization.

The national assembly is set to convene on Monday. Lawmakers aligned with Maduro have accused a faction of supporters of his predecessor and mentor, the late former president Hugo Chavez, of handing Maduro over to the US military, according to a document seen by Argus. Doing so could amount to treason under Venezuelan law.

Trump on Saturday said Rodriguez and Rubio had a telephone conversation, during which the acting Venezuelan leader agreed to cooperate with US demands.

Rubio, like Trump, confirmed that the US prefers to deal with the existing government of Venezuela — which it decried as an illegitimate "narco-regime" — rather than the Venezuelan opposition and its nominal leaders, whom the US acknowledged as the winners of last year's presidential election.

Venezuelan opposition leader Maria Corina Machado is "fantastic" but the bulk of her movement "is no longer present inside of Venezuela", Rubio said. "We have short-term things that have to be addressed right away."

Rubio also appeared to be walking back Trump's claim of taking over the Venezuelan oil industry.

"We don't need Venezuela's oil," Rubio said. "We have plenty of oil in the United States."

But the US will not allow "the oil industry in Venezuela to be controlled by adversaries of the United States," he said.

Venezuela has been sending crude to China under a large oil-for-loans program, as well as selling crude to independent refineries.

Trump on Saturday reiterated his complaints that Venezuela's government under Chavez nationalized the assets of US oil companies, which he said was one of the "largest thefts of property" in US history. Trump claimed that future oil revenue in Venezuela would defray the costs of temporarily administering the government.

Chevron operates in Venezuela with state-owned PdV under a waiver from US sanctions and imported about 120,000 b/d of crude from Venezuela to the US in December, based on data from Kpler ship tracking.

Chevron said it "remains focused on the safety and well-being of our employees, as well as the integrity of our assets. We continue to operate in full compliance with all relevant laws and regulations".

ExxonMobil and ConocoPhillips, which lost assets in Venezuela in 2007, have won awards in international tribunals and US courts for the expropriation of their assets in Venezuela.

ConocoPhillips holds the largest claim for expropriated assets, at $12bn. That claim is about to be mostly satisfied as a US court has ordered the auction of PdV-owned US refining company Citgo.

A federal judge overseeing the auction to buy Citgo in November affirmed the winning $5.9bn bid from Amber Energy, an affiliate of New York hedge fund Elliott Investment Management.

Source: Argus Media

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Gerik

Economic

The Global AI Boom and ASEAN’s Structural Opportunity

As the world moves through a new wave of technology investment, artificial intelligence has emerged as a transformative force shaping capital flows and trade patterns. While the majority of direct investment and innovation in AI remains concentrated among a handful of tech giants in the U.S., ASEAN economies are emerging as strategic nodes in the expanding global value chain. Their advantage does not lie in headline-grabbing innovation, but in the infrastructure, specialization, and geographic neutrality that increasingly appeal to global investors.

Unlike previous cycles such as the dot-com era or the mobile internet explosion, the current AI cycle is being led by massive capital expenditure especially in data infrastructure. Investment in data centers, semiconductor packaging, and compute power is accelerating faster than in any recent tech upcycle. Crucially, this surge has not yet shown the classic signs of a speculative bubble. Export growth remains strong but measured, corporate spending is still within historical bounds, and leverage ratios are manageable.

ASEAN’s Five Channels of AI-Driven Gains

Supply Chain Embeddedness: Many ASEAN economies play a central but often overlooked role in the global supply chain for high-tech manufacturing. They supply components and services ranging from wafer substrates and power units to chip assembly, precision tooling, and optical networking. While not producers of cutting-edge chips themselves, countries like Malaysia, Vietnam, and Thailand provide the connective industrial tissue that supports the AI boom.

The rising demand for AI servers, particularly those used in data-intensive environments such as LLM training and video generation, is generating second-order effects across this network. These effects are observable in increased orders for testing, packaging, and advanced cooling systems activities where ASEAN firms are globally competitive.

Upfront Investment Momentum: As with past technology cycles, the launch of new platforms and services often precedes actual consumer adoption. To meet expected demand, firms place early equipment orders and expand production ahead of revenue. This "investment-led anticipation" generates near-term industrial growth, particularly in hardware supply chains.

ASEAN economies are well positioned to capitalize on this front-loaded investment pattern. Vietnam, for example, continues to expand its electronics capacity, building on prior waves of FDI. Malaysia remains a key player in semiconductor packaging and testing, while Thailand supports adjacent sectors like power equipment and precision engineering.

Data Center Magnetism: Southeast Asia is also benefiting from a growing influx of investment in data centers, driven by favorable conditions including affordable land, competitive electricity pricing, and relatively efficient regulatory frameworks. Countries like Singapore and Malaysia are leading in high-value operations, while Vietnam and Thailand are expanding their infrastructure footprint.

These facilities serve not just AI-specific applications, but also general cloud computing, hosting, and digital services, indirectly multiplying demand for AI-related hardware. The construction of data centers also stimulates domestic supply chains in construction, cooling technologies, electrical systems, and connectivity services.

Geopolitical Diversification and Manufacturing Hedging: Amid rising tensions and industrial policy shifts in major economies, global firms are increasingly reconfiguring their supply bases to mitigate risk. The U.S., EU, and Japan are promoting domestic chip production, but simultaneously encouraging diversification among suppliers to avoid overconcentration in China.

ASEAN benefits from this hedging behavior. Not only are companies seeking operational redundancy, they are also looking for cost-efficient, geopolitically neutral zones for low to mid-range chip production. ASEAN’s politically balanced posture and economic openness make it an ideal destination for such redistribution of capacity.

Demand for Mature Node Semiconductor Manufacturing: While the AI arms race focuses attention on advanced chip nodes, the vast majority of semiconductor demand still lies in mature processes used in automotive electronics, industrial machinery, and general consumer goods. Southeast Asia dominates in these areas.

Singapore and Malaysia are expanding traditional semiconductor capacity, taking advantage of rising demand for legacy nodes. This complements the AI cycle by fulfilling auxiliary functions in devices that require non-advanced but highly reliable chips. ASEAN’s edge here lies in accumulated expertise, workforce specialization, and existing ecosystem maturity.

Export Shifts and Regional Differentiation

Across ASEAN, the technology export landscape is becoming more diversified. Vietnam has steadily increased its global share thanks to a surge in operationalized FDI projects. Malaysia’s robust semiconductor ecosystem is attracting additional capital, particularly in testing and assembly. Singapore serves as the regional anchor for specialized machinery, AI-ready infrastructure, and data-centric industries.

Thailand, though not a semiconductor leader, is capitalizing on related opportunities in data center infrastructure especially in energy, construction, and HVAC systems. The overall trend reveals a geographic spread of complementary advantages, where each economy leverages its unique strengths to plug into the broader AI-driven industrial shift.

Sustaining the Momentum: Challenges and Imperatives

Despite favorable positioning, ASEAN faces several constraints that may limit its long-term capture of AI-driven value. Rising energy demand is beginning to strain infrastructure, while regulatory inconsistencies and skilled labor shortages remain persistent bottlenecks.

To fully realize its potential, the region must invest in:

Upgrading power infrastructure to support energy-intensive data centers
Reforming land-use and permitting policies to streamline digital infrastructure projects
Enhancing workforce training in electronics, automation, and precision manufacturing
Promoting regional trade frameworks that facilitate intra-ASEAN component flows

Quiet Strength in a Global AI Renaissance

While ASEAN may lack the tech titans of Silicon Valley or the chip fabs of Taiwan and Korea, its role in the global AI economy is growing in quiet, strategic ways. As capital flows expand beyond innovation hubs into infrastructure and manufacturing support, Southeast Asia stands to gain through specialization, positioning, and scale.

The AI boom, if sustained without major disruptions, could amplify ASEAN’s industrial transformation, making it an indispensable if understated actor in the reshaping of global technology supply chains. The region’s future will depend not on leading the charge, but on becoming the indispensable support that sustains it.

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Gerik

Economic

Regional Manufacturing Recovery: Turning the Corner

After a prolonged industrial downturn, Asia's major manufacturing hubs ended 2025 on a more optimistic note. Export-driven recovery, fueled by surging global demand for new technologies and AI-related hardware, has begun to lift the region’s Purchasing Managers’ Index (PMI) indicators above the contraction threshold.

According to the latest S&P Global PMI data released on January 1, 2026, Taiwan’s index climbed to 50.9 from 48.8 in November, marking its first return to expansion in 10 months. Similarly, South Korea’s PMI reached 50.1, also signaling growth after over a year of contraction. China’s official PMI, reported by its National Bureau of Statistics, also edged back into expansion territory at 50.1 after eight months of decline.

These synchronized improvements among Northeast Asia’s tech-exporting economies signal that the region may be entering a recovery phase. The correlation between AI hardware demand and export strength underscores the structural role that high-tech manufacturing plays in supporting broader economic stabilization.

Vietnam’s Role in the Reconfigured Supply Chain

Against this backdrop, Vietnam continues to stand out as a relatively stable and expanding manufacturing base. Its production sector maintained positive momentum throughout 2025 and is forecast to continue growing into 2026. Vietnam’s advantage lies in its dual positioning: it is both an active participant in global trade and a strategic alternative to China in supply chain diversification.

The long-term realignment of global supply chains is now playing out in full force. As international firms seek to de-risk their production networks, Vietnam has become an increasingly attractive destination. This is particularly evident in the continued influx of foreign direct investment (FDI) into electronics, industrial components, and green manufacturing. These capital flows have helped strengthen Vietnam’s technological capabilities and managerial sophistication, enhancing the quality and sustainability of its manufacturing output.

Shifting Competitive Edge: From Cost to Capability

However, the landscape is not without complications. Vietnam’s traditional cost advantage is being eroded by rising wages, increased energy costs, and stricter environmental compliance requirements. While these pressures are not unique to Vietnam, they signal a transition in which the country can no longer rely solely on low costs to attract investment.

This shift implies that Vietnam’s continued manufacturing expansion will increasingly depend on improving productivity, enhancing domestic value-added, and boosting local sourcing. The path forward hinges on industrial upgrading moving up the value chain through innovation, workforce training, and supply chain integration. Simply offering cheaper labor is no longer sufficient to secure long-term investment commitments from global corporations.

AI, Technology, and Vietnam’s Strategic Outlook

Vietnam is also poised to benefit indirectly from the global AI boom. As demand for AI-enabling hardware such as chips, data center components, and sensors continues to grow, the country’s expanding role in electronics assembly and component manufacturing becomes more valuable. Moreover, Vietnam’s growing ecosystem of supporting industries and its alignment with multilateral trade frameworks position it well to absorb the spillover effects of tech-driven global growth.

The broader implication is that Vietnam’s industrial development is now tied not just to trade policy or foreign investment, but to how effectively it can link its economy to emerging technology cycles, particularly in AI, renewable energy, and digital manufacturing.

From Stability to Strategic Sophistication

Vietnam enters 2026 not only as a beneficiary of Asia’s manufacturing rebound but also as a country at a strategic crossroads. Its rising role in supply chain diversification is clear, and its ability to attract investment remains strong. Yet, sustaining growth will depend on its capacity to evolve from a low-cost hub into a high-value, technology-integrated manufacturing platform.

With global production cycles regaining momentum and AI technologies reshaping industrial demand, Vietnam has a rare opportunity to consolidate its position as a key node in the regional supply network. Whether it can seize that opportunity will depend on the quality not just the quantity of its growth strategy in the year ahead.

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