Economy in Brief

This week, we examine Artificial Intelligence through an Asian lens, focusing on how the region fits into the broader AI value chain. While the US clearly dominates at the frontier—spanning cutting-edge AI model capabilities, chip design, and data centres—it remains heavily reliant on more foundational segments of the value chain.

We begin with first principles, looking at the raw material inputs required to produce AI chips, where China continues to hold a dominant position (chart 1). We then turn to the chips themselves, highlighting Taiwan’s well-known leadership in advanced semiconductor manufacturing and its critical role for both the US and China (chart 2). That said, recent efforts by both the US and China to reduce external dependence are beginning to show up in the data (chart 3), and could reshape this landscape in the years ahead. Next, while the US still leads in data centre capacity—the infrastructure essential for training and deploying AI models—several Asian economies, notably Malaysia, are seeking to capture a larger share of this rapidly expanding segment. These efforts have been met with strong interest from global technology firms, translating into sizable foreign direct investment inflows (chart 4).

Underpinning the entire AI ecosystem, however, are rapidly rising electricity requirements. China is now the world’s largest consumer of electricity, while other aspiring AI players, including India, will also need to confront the growing energy demands that come with deeper participation in the AI space (chart 5). At the same time, economies that have made significant shifts toward certain renewable energy sources must contend with higher electricity prices. This may create pressure to slow—or in some cases reconsider—the pace of the green transition in order to remain competitive in the intensifying race for AI-related resources (chart 6).

AI chip material production We begin with the most critical raw inputs required to produce AI chips. Beyond silicon—the foundational material on which chips are built—China commands substantial market share and dominance in the production of other key chipmaking materials, notably gallium and germanium. China accounts for a near-total share of global gallium production and roughly 68% of germanium output (chart 1), levels that effectively give it the ability to steer these markets. China has demonstrated this leverage before, most recently through temporary export restrictions on critical minerals enacted last year amid tit-for-tat measures between the US and China. Those controls were eventually paused following a subsequent US–China trade agreement. Even so, the episode served as a stark reminder of China’s strong negotiating position in the semiconductor supply chain—despite the US retaining leadership in the sophistication and advancement of AI models.

GDP in the European Monetary Union rose by 1.3% at an annual rate quarter-to-quarter in the fourth quarter of 2025. This is a step up from 1.1% in the third quarter and from 0.6% in the second quarter. Year-over-year growth in the monetary union slowed to 1.3% in the fourth quarter compared to 1.4% in the third quarter and 1.5% in the second quarter; however, GDP growth is holding up well, and the quarterly profile suggests that the current growth rate is solid.

Early-stage GDP reporters At this early stage, only seven countries have reported publicly GDP figures, and we see them in the table. Among them, the strongest growth rate in the fourth quarter is from Portugal at 3.2%, followed by Spain at 3.1%, and then the Netherlands at 2.1%; the weakest growth rate reported in the table is from France at 0.7% at an annual rate in Q4.

Quarterly acceleration/deceleration In the fourth quarter with GDP measured quarter to quarter, GDP has accelerated in the monetary union from 1.1% in Q3 to 1.3% in Q4. At the country level, there are accelerations in Germany, Italy, Portugal, and Spain; the Netherlands logs the same growth rate in Q3 as in Q4 at 2.1%. Belgium and France log slowdowns, with Belgian growth posting a 0.8% annual rate in Q4 compared to 1.0% in Q3 and with France at 0.7% in Q4 compared to 2.1% in Q3.

Year-on-year trends Year-over-year trends are different from this, however. On a year-over-year basis, the monetary union shows slightly slower growth at 1.3% in Q4 compared to 1.4% in Q3. Accelerating comparisons show Belgium, France, Germany, Italy, and the Netherlands all on rising growth rate profiles for year-on-year growth. Growth slows quarter-to-quarter in Portugal and in Spain.

Growth in historic context The year-on-year growth rate overall ranked on data back to 1997 shows only Italy and Portugal with rates of growth above their respective medians for the period (back to 1997). Italy's growth rate has a 55.4 percentile standing, the same as for Portugal. Spain’s 48.9 percentile standing places its growth rate near its median, while the other countries produce growth rates largely in the mid-30th to low 40th percentiles for this period.

Large economy/small economy Comparing growth rates for the largest four economies to the rest of the monetary union, we have the large economies growing stronger quarter-to-quarter in the fourth quarter of 2025 at 1.4% compared to 1.2%; this is a reversal of the pattern that we saw in Q3 and Q2. In fact, the year over year growth rates show the four largest economies growing slower than the rest of the monetary union, for the last four quarters. In the fourth quarter, they have a 40.2 percentile standing on growth rates back to 1997 while the rest of the monetary union comes in very close to its median growth rate with a percentile standing at 48.9%. It doesn't appear that any particular part of the monetary union is doing especially well, but the smaller countries appear to be closer to normal than the larger countries where growth remains more significantly challenged than it has been over the last 30 years.