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BANGKOK: The International Monetary Fund on Thursday projected Asia\u2019s economic growth would moderate next year and warned of heightening risks from the Iran war-induced energy shock, a potential correction in the AI boom and spillovers from rising global bond yields.<\/p>\n
In a report on the outlook for the Asia-Pacific region, the global lender also said uncertainty over the US monetary policy path could keep Asian financial markets volatile.<\/p>\n
\u201cExchange rates and capital flows have become more volatile since the energy shock this year,\u201d \u200cwith several emerging economies \u200cexperiencing depreciation pressures, the IMF said in the \u200breport \u200cissued \u2060during its \u200bannual meetings \u2060in Bangkok.<\/p>\n
While foreign investment inflows in the region remain generally robust, such moves have coincided with some portfolio outflows such as from South Korean technology stocks, it said.<\/p>\n
\u201cThe US monetary stance is expected to continue to tighten later this year. The combination of monetary policy tightening and fiscal pressures in most major advanced economies is likely to keep upward pressures on yields across Asia and the Pacific.\u201d<\/p>\n The IMF said it \u2060now expects Asia\u2019s economy to grow 4.8 percent in 2026 and 4.4 percent \u200cin 2027, higher than projections made in \u200cApril but still slowing from a 5.0 percent expansion in \u200b2025.<\/p>\n The revisions largely reflected the boost \u200cfrom the AI boom for advanced Asian economies, with their growth expected to accelerate \u200cto 3.2 percent in 2026 from 2.5 percent last year, it said.<\/p>\n Emerging Asia remains the region\u2019s main growth engine but will likely see growth moderate to 5.1 percent in 2026 from 5.6 percent last year due to the hit from higher energy prices, the report said.<\/p>\n \u201cRisks to the \u200coutlook remain tilted to the downside\u201d as a prolonged stalemate in the Middle East conflict could keep commodity prices high and \u2060deplete oil reserves, \u2060the IMF said.<\/p>\n A correction in AI demand could weigh on global growth, with the effects likely to be particularly pronounced in Asia given its extensive exposure to the AI production chain.<\/p>\n With global yields rising, market stress in major sovereign issuers like the US, the UK, euro zone and Japan could spill over to Asian bond markets, pushing up yields and exacerbating already-elevated fiscal vulnerabilities, it said.<\/p>\n \u201cWith public debt and borrowing needs remaining high across much of the region, an abrupt tightening of financial conditions could further strain public finances by raising debt-servicing costs,\u201d the IMF said.<\/p>\n Asian central banks should remain focused on price stability and \u201crespond promptly\u201d if inflationary pressures \u200bbecome more persistent, the IMF said.<\/p>\n Fiscal policy \u200bshould be targeted and temporary, the IMF said, urging countries in the region to avoid blanket fuel subsidies or price controls that could be more costly.<\/p>\n<\/div>\n