The Baku–Tbilisi–Kars Corridor is being relaunched at full capacity

1. In early June, one of the most significant railway investments in the Eurasian region entered a new operational phase, following the completion of modernization work on the 180-km Marabda–Kartsakhi section—the part of the railway that crosses Georgia—and the construction of a bogie-changing terminal using state-of-the-art European technology and equipment.

2. Of the total length, 153 km of existing railway track has been modernized, and a section of over 30 km is a completely new line, built to European gauge, connecting the towns of Akhalkalaki and Kartsakhi in southern Georgia with the border of Turkiye.

3. Akhalkalaki is the main railway hub of the Baku–Tbilisi–Kars project. This is where the transshipment terminal is located, where freight is transferred between the 1,520 mm gauge and the 1,435 mm gauge. Kartsakhi is situated right on the Georgian-Turkiye border, and this is where the new section built for the BTK project begins, connecting to the Turkiye railway network toward Kars.

4. Modernization work on the Georgian section of the Baku–Tbilisi–Kars railway corridor was carried out in five stages, from Marabda to Kartsakhi, including the development of the logistics and railway complex at Akhalkalaki. As part of the project, 13 stations, 55 bridges, eight traction substations, and over 320 buildings and engineering structures were modernized, while new snow protection facilities, nearly 18 km of catenary, and modern train operation facilities were also constructed.

5. Following the completion of the works in Georgia, the Baku–Tbilisi–Kars corridor was reopened at full capacity, strengthening the role of the Middle Corridor as a strategic alternative for freight transport between Asia and Europe.

The Much-Touted Middle Corridor Transport Route Could Prove a Dead End

1. In the wake of Russia’s full-scale invasion of Ukraine and the most recent wars in the Middle East, experts and politicians expected a major transport route to emerge through Central Asia and the South Caucasus, bypassing sanctioned Russian and Iranian territory: the so-called Middle Corridor. For the EU and United States, the corridor holds dual promise: as a trade link between China and Europe and as a strategic pathway for Central Asia’s vast reserves of critical minerals, which are essential for the energy transition and defense industries.

CPO Mass Production Bottleneck: Single-Chip Testing Exceeds 100 Seconds, Equipment Giants Race to Fill the Gap

1. As AI data centers' computing power demands continue to climb, traditional copper interconnect technology is approaching its physical limits. Co-packaged optics (CPO) is being touted as a key interconnect solution for next-generation AI infrastructure. However, just as Taiwan Semiconductor Manufacturing Co. (TSMC) prepares to mass-produce chips using its COUPE platform in 2026, a long-overlooked step in the process is becoming a critical bottleneck across the entire supply chain: testing.

BNM Publishes Annual Report 2025, Economic and Monetary Review 2025, and Financial Stability Review for Second Half 2025

1. Bank Negara Malaysia (BNM) today released its Annual Report 2025 (AR 2025), Economic and Monetary Review 2025 (EMR 2025), and Financial Stability Review for Second Half 2025 (FSR 2H 2025).

2. AR 2025 highlights BNM’s key initiatives in the past year in discharging its mandates to promote monetary and financial stability conducive to the sustainable growth of the Malaysian economy. The report also provides an account of the broader central bank operations. Meanwhile, EMR 2025 provides BNM’s economic assessments and forecasts, covering economic and monetary developments in 2025 and the outlook for 2026. The FSR is a biannual publication which details BNM’s assessment of domestic financial stability risks and outlook. Highlights of the reports. 

Building the Energy Resilience ASEAN+3 Needs

1. Energy systems across ASEAN+3 (the Association of Southeast Asian Nations, plus China, Japan, and Korea) are under increasing strain. Climate shocks are threatening infrastructure and supply. The rapid expansion of AI and digital infrastructure is driving a surge in electricity demand. And geopolitical tensions are adding new volatility to global energy markets.

2. Although the region is more resilient to energy shocks than in the past, these forces are creating new challenges for macroeconomic stability. Climate change is no longer only an environmental issue. It is increasingly testing energy systems – including power generation, fuel supply chains, and electricity networks – with far-reaching effects on the broader economy.

Governments Must Focus on Spending Better, Not More

1. Finance ministries across ASEAN+3 face mounting pressures from aging populations, climate adaptation, rapid technological change, infrastructure upgrades and in some cases national security—while grappling with rising debt service burden.

2. With large tax hikes politically unpalatable and broad spending cuts threatening growth and social cohesion, policymakers are shifting focus from spending more to spending better.

3. Making spending more productive begins with better allocation, effective implementation, and robust institutions to support this process.

Shock and Resilience: ASEAN+3 and the Conflict in the Middle East

1. The US–Israel military operation against Iran that began on 28 February 2026 has triggered the most significant disruption to global energy markets since 2022. At the time of writing, the Strait of Hormuz – through which roughly a fifth of global oil and liquefied natural gas (LNG) trade normally flows – has been effectively closed to commercial shipping. Oil prices have surged well above pre-conflict levels and remain elevated and volatile.

2. For ASEAN+3, which sources over a third of its oil and gas from the Middle East, the exposure is direct. The risks – higher energy import bills, pass-through to inflation, and potentially tighter financial conditions – should not be understated.

3. Based on AMRO’s internal estimates, if oil prices remain elevated at around USD 90 per barrel for the remainder of the year, inflation in the region could increase by an additional 0.7 percentage points, and growth reduced by 0.2 percentage points.

4. But this is not the 1970s. Nor even 2022. ASEAN+3 enters this episode from a position of strength – in its macroeconomic conditions, the policy space available to respond, and in how the structure of its economies has changed.

Malaysia: Leveraging the Investment Upcycle for Durable Growth Amid Geoeconomic Fracturing

1. The Malaysian economy has demonstrated notable resilience despite rising global trade protectionism and geopolitical tensions. Robust electronics exports and AI-related investment have supported growth, reflecting Malaysia’s entrenched position in global semiconductor and electronics value chains and its gains from the ongoing global tech upcycle. 

2. Political stability as well as policy clarity and credibility have reinforced investor confidence. Sustaining this investment momentum will require preserving macroeconomic and financial resilience, deepening domestic capabilities, and strategically positioning Malaysia as a trusted hub amid geoeconomic fracturing.

3. This preliminary assessment follows AMRO’s Annual Consultation Visit to Malaysia from January 26 to February 6, 2026. The mission was led by Lead Economist Kian Heng Peh. AMRO Director/CEO Yasuto Watanabe and Chief Economist Dong He participated in the policy discussions and met with Bank Negara Malaysia (BNM) Governor Dato’ Sri Abdul Rasheed Ghaffour and Deputy Minister of Finance Liew Chin Tong.

ASEAN+3 Region Expected to Grow at 4.0 Percent in 2026, External Uncertainty Remains Elevated

1. AMRO today released its quarterly update of the ASEAN+3 Regional Economic Outlook (AREO). It estimates the ASEAN+3 economy to have grown by 4.3 percent in 2025, and projects growth to moderate to 4.0 percent in 2026. Inflation is estimated at 0.9 percent in 2025 and projected at 1.2 percent in 2026, remaining below the region’s long-run average.

Global automakers step up US investments

1. Since the US government announced it was hiking import tariffs on new vehicles and components to 25% earlier this year, global automakers – including US manufacturers GM and Ford – have scrambled to adapt their existing business plans and implement new strategies to safeguard their positions in the world’s second-largest auto market. Many automakers, already struggling with falling market shares and volumes in China, the world’s largest vehicle market, have since substantially revised down their earnings forecasts for the current year and subsequent years.

2. The automotive industry, including its highly complex component supply chain, inevitably works on long-term planning and relies on a stable government policy environment. New investments are linked to new model production cycles, the introduction of new technologies, and market demand. The sudden introduction of the new import tariffs has taken the industry by surprise, forcing automakers to revise and bring forward their existing investment plans and make short-term fixes to limit the effects of the new tariffs.

US will be exempt from global tax deal targeting profits of large multinationals

1. Nearly 150 countries have agreed on a landmark plan to stop large global companies shifting profits to low-tax jurisdictions, but the US will be exempt from the deal, angering tax transparency groups.

2. The plan, finalised by the Organisation for Economic Cooperation and Development, excludes large US-based multinational corporations from the 15% global minimum tax after negotiations between the Trump administration and other members of the G7.

Can the US create high-tech manufacturing jobs?

1. It is hard to imagine exactly how we will know who won the AI arms race. We would need a global consensus about what AI that supersedes human-level intelligence (commonly referred to as artificial general intelligence) looks like, a benchmark that is much harder to pin down than a picture of Neil Armstrong on the moon.

2. Whatever the case, industry and government officials at the SelectUSA Investment Summit agreed: the US wants, needs, to be first.   

3. A crucial part of winning the AI race in the US involves creating a high-tech manufacturing industry that will build the thousands of chips and data centres needed to power this technology. The creation of such an industry is aligned with one of the Trump administration’s main goals: bringing manufacturing jobs back to the US. However, delegates at the SelectUSA Investment Summit made it clear that this was not an easy task and that the lack of a trained labour force is one of the main obstacles they face. How will the US address its skilled labour shortfall in order to power its AI ambitions?  

What are Small Modular Reactors (SMRs)?

1. Small modular reactors (SMRs) are advanced nuclear reactors that have a power capacity of up to 300 MW(e) per unit, which is about one-third of the generating capacity of traditional nuclear power reactors. SMRs, which can produce a large amount of low-carbon electricity, are:

• Small – physically a fraction of the size of a conventional nuclear power reactor.

• Modular – making it possible for systems and components to be factory-assembled and transported as a unit to a location for installation.

• Reactors – harnessing nuclear fission to generate heat to produce energy.

Finance can put trade at risk, leaving the global economy 'on the brink' – with developing countries hardest hit

 1. A new UN Trade and Development report says reforms to global financial systems are key to reducing vulnerability, improving predictability and supporting stronger alignment between trade, finance and development.

2. Global growth will slow to 2.6% in 2025, down from 2.9% in 2024, as global trade and investment face growing pressure from financial volatility and geopolitical uncertainty, according to UN Trade and Development’s new “Trade and Development Report 2025: On the Brink – Trade, finance and the reshaping of the global economy”. The report shows that shifts in financial markets move global trade almost as strongly as real economic activity, influencing development prospects worldwide.

3. UN Trade and Development (UNCTAD) Secretary-General Rebeca Grynspan said the findings show how financial conditions increasingly determine the direction of global trade: “Trade is not just a chain of suppliers. It is also a chain of credit lines, payment systems, currency markets and capital flows.”

Malaysia: National Semiconductor Strategy to Secure Global Position

 1. Malaysia is working to strengthen its role in the global semiconductor sector by diversifying supply chains and maintaining investor confidence amid trade uncertainties. The country’s approach is being shaped by the National Semiconductor Strategy (NSS), which aims to enhance resilience in an industry increasingly influenced by geopolitical and economic shifts.

2. The NSS reflects Malaysia’s ambition to position itself, alongside neighbouring economies such as Singapore and Vietnam, as a vital link in the global technology supply chain. The emphasis is on creating a more robust and flexible framework for semiconductor production and trade, moving away from the older reliance on single-sourced operations.

ETSI Launch Positions Malaysia As Regional Semiconductor Hub

 1. Collaborative Research in Engineering, Science & Technology (CREST) and the Human Resource Development Corporation (HRD Corp) have launched the Engineering Talent for Semiconductor Industry (ETSI) Programme, a flagship initiative to strengthen Malaysia’s semiconductor capabilities.

2. The programme, aligned with the National Semiconductor Strategy (NSS) and anchored by the Ministry of Investment, Trade and Industry (MITI) and the Ministry of Human Resources (KESUMA), aims to develop a holistic talent pipeline spanning students, graduates, the existing workforce and researchers. It seeks to equip participants with critical skills across the semiconductor value chain to boost R&D, innovation and Malaysia’s competitiveness in the global E&E sector.

3. ETSI includes four key programmes: structured internships for students, job-ready training for graduates and the unemployed, reskilling and upskilling of the current workforce and access to CREST’s Semiconductor Centre of Excellence (CoE) for advanced training and R&D. The programme is designed to nurture homegrown engineers, facilitate knowledge transfer and strengthen industry–academia linkages.

Malaysia Industrial Property Outlook 2025: A Stable Market Driven by Strong Construction Activity & Investor Demand

 1. The industrial property segment continues to be the strongest performer in Malaysia’s real estate market for 2025. Based on NAPIC’s Q1, H1, and Q3 2025 snapshots, the data shows a healthy industrial pipeline, stable demand, and sustained construction activity—even as other sectors like residential and serviced apartments face oversupply challenges.

Global FDI falls, but the digital economy continues to grow – report

1. According to the latest World Investment Report from UNCTAD, global foreign direct investment (FDI) saw an overall increase of 4% in 2024. However, when excluding financial flows through European conduit economies, FDI actually decreased by 11% during the same year.

2. The report also notes the importance of the digital economy, which has grown significantly since 2020, tripling its value to $360bn. The report notes that this growth risks exacerbating inequalities, given that it is highly concentrated in certain countries.

3. While UNCTAD had mentioned the possibility of modest growth in 2025 earlier in the year, it changed its outlook to negative due to high investor uncertainty. It cites “geopolitical tensions and industrial policy goals” as strongly influencing global investment decisions, as well as high borrowing costs and exchange rate volatility.

The Challenges and Outlook for BESS Developments in Malaysia

1. The Malaysian National Grid and power systems face numerous challenges in the coming years with an expected rise in electricity load and the integration of more renewable energy (RE) sources. Specifically, Malaysia has set RE capacity targets of 31 % and 40 % by 2025 and 2035, respectively, which will be primarily supported by solar (PV), mini-hydro and biomass.

Is manufacturing making a comeback in the US?

1. When Rosemary Coates, executive director of the nonprofit Reshoring Institute, worked as a supply chain consultant for large companies in the 1990s and early 2000s, the CEOs would invite her into their offices and say, “Just get me to China.”

2. “‘We know it’s cheaper. Our competitors are doing it. It’s what we should do. Let’s just go to China,’” Coates recounted at the Women in Manufacturing Summit in Chicago on Oct. 13. “There wasn’t a whole lot of thought to it. Some may be financial analysis, but by and large, it was simply the strategy to go forward.” 

3. Cut to the 2012 election, before which then-President Barack Obama and presidential candidate Mitt Romney debated over China’s trade practices and bringing jobs back to the United States, or “China bashing.”

4. “They were both saying, ‘It’s all China’s fault. The economy has all gone downhill because of China,’” Coates said. “This is what I was doing for a living, outsourcing, closing plants and factories in the U.S. and pushing all this manufacturing to China.”

5. The debate then had CEOs talking about the potential for reshoring, asking her, “Is it even possible to bring manufacturing back? Can we do it?”

6. Coates then decided to pivot and focus on helping rebuild, reevaluate and find ways to bring manufacturing back to the U.S. by establishing the Reshoring Institute in 2014.

7. So can manufacturing make a comeback? The answer is yes and no, Coates said.

8. “Brace yourself. [Change is] coming if it isn’t already here,” Coates said. “And you need to learn to be flexible and accept that and look to the future.”