The International Monetary Fund projected on Thursday that economic growth across Asia would moderate in the coming years. The global lender issued the forecast during its annual meetings in Bangkok, pointing to hazards from an energy shock linked to the war involving Iran.
Officials also pointed to potential corrections in the artificial intelligence boom and spillovers from climbing global bond yields as key concerns. Uncertainty surrounding the trajectory of United States monetary policy will likely keep Asian financial markets volatile.
Exchange rates and capital flows have turned more volatile since the energy shock earlier this year. Several emerging economies across the region are experiencing depreciation pressures as a result.
Foreign investment inflows generally remain robust, though these trends have coincided with portfolio outflows. Money has pulled out of areas such as South Korean technology stocks.
The US monetary stance is expected to tighten later this year. Monetary tightening combined with fiscal pressures in major advanced economies will maintain upward pressure on yields throughout Asia and the Pacific.
The IMF expects the broader Asian economy to grow by 4.8 percent in 2026 and 4.4 percent in 2027. These figures represent an upward revision from April projections, but still mark a deceleration from the 5.0 percent expansion recorded in 2025.
Advanced Asian economies will receive a boost from the artificial intelligence boom. Their growth is anticipated to accelerate to 3.2 percent in 2026, up from 2.5 percent last year.
Emerging Asia functions as the primary engine of regional growth. Growth in those markets is expected to moderate to 5.1 percent in 2026, falling from 5.6 percent last year due to higher energy prices.
Risks to the overall outlook are tilted toward the downside. A prolonged stalemate in the Middle East conflict could sustain high commodity prices and deplete oil reserves.
A potential correction in artificial intelligence demand could weigh heavily on global growth. The consequences would be pronounced in Asia given the region’s deep exposure to the artificial intelligence production chain.
Market stress in major sovereign issuers like the US, the UK, the euro zone, and Japan could spill over into Asian bond markets. This dynamic risks pushing up yields and worsening elevated fiscal vulnerabilities.
Public debt and borrowing needs remain high across much of the region. An abrupt tightening of financial conditions could strain public finances by driving up debt-servicing costs.
The IMF advised Asian central banks to maintain their focus on price stability. Policymakers should respond promptly if inflationary pressures turn more persistent.
Fiscal policy ought to remain targeted and temporary. Countries across the region should avoid blanket fuel subsidies or price controls that prove costly.
