The IMF forecast regional expansion of 4.8 per cent in 2026, compared with 5 per cent last year, followed by a further slowdown to 4.4 per cent in 2027. Its latest estimate for this year nevertheless represents a substantial upgrade from the 4.4 per cent projected in April.
The revised outlook reflects sharply contrasting pressures across Asia. Demand for semiconductors, data centres and other technology equipment has strengthened exports and investment, while higher energy costs linked to the Middle East conflict have squeezed economies dependent on imported fuel.
The fund warned that a reversal in AI investment or technology share valuations could undermine growth disproportionately because Asian manufacturers occupy central positions in global electronics supply chains. Higher sovereign borrowing costs and prolonged disruption to energy supplies present additional threats.
Emerging and developing Asian economies are projected to grow 5.1 per cent this year, down from 5.6 per cent in 2025, before slowing to 4.9 per cent next year. Advanced regional economies are expected to expand 3.2 per cent in 2026, compared with 2.5 per cent last year, then moderate to 2 per cent in 2027.
The IMF upgraded forecasts for South Korea, Taiwan and Hong Kong, where demand linked to AI infrastructure has lifted manufacturing and exports. China and India also received upward revisions, although countries facing higher inflation without equivalent technology gains have experienced weaker growth projections.
Krishna Srinivasan, director of the IMF’s Asia and Pacific Department, said at the fund’s annual meetings in Bangkok that technology exports had accelerated sharply during the first half of 2026. Demand for chips and investment in data centres were important contributors, alongside stronger trade within the region.
He said economies had responded to energy disruptions by diversifying fuel suppliers, reducing consumption, increasing alternative energy use and drawing down inventories. Governments had also introduced measures intended to contain inflation, protect incomes and prevent supply shortages.
Those adjustments have not eliminated the unequal effects of the energy shock. Bangladesh, Cambodia and Laos are among the fuel-importing economies with limited direct exposure to the AI investment boom and comparatively restricted financial resources to absorb further pressure.
The IMF urged monetary authorities to maintain price stability as expensive energy threatens to push inflation expectations higher. It cautioned that central banks could face difficult decisions if weaker growth coincides with persistent price pressures, particularly where currencies and capital flows respond to changes in global interest rates.
Fiscal policy should focus on vulnerable households and businesses rather than costly blanket subsidies, the fund indicated. Elevated public debt and higher bond yields reduce governments’ ability to sustain broad support programmes without increasing financial risks.
The regional assessment comes as investors reassess the durability of spending on AI infrastructure. Asian technology shares suffered steep losses on Thursday, with South Korea’s benchmark stock index falling nearly 8 per cent and Japan’s Nikkei dropping about 5 per cent amid concerns over US inflation and borrowing costs.
The fund also identified concentrated stock market valuations and increased investor leverage as potential sources of instability. A sharp repricing could affect financing conditions and confidence even in economies where orders for technology products remain comparatively strong.
Separately, the IMF expects China’s growth to slow from 5 per cent in 2025 to 4.5 per cent this year and 4 per cent in 2027. It has called for stronger domestic demand and fiscal measures to counter deflationary pressures, rather than continued reliance on external sales.
Beyond financial markets, the fund highlighted employment challenges associated with technological change. Srinivasan said its research found employer demand for jobs more exposed to AI had declined by 10 per cent, although that effect appeared to have stabilised as employers sought workers with relevant skills.
The IMF recommended addressing youth unemployment and skills mismatches, strengthening social protection and improving energy security through diversification and renewable supplies. It also supported deeper regional trade integration as governments seek to preserve access to markets despite tariff barriers.
The regional outlook additionally identified a severe El Niño episode as a potential disruption to agriculture, fisheries and hydropower generation, with possible consequences for food and electricity prices across vulnerable economies, particularly in countries heavily reliant on imported energy.
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