Asia's Uneven Economic Resilience Faces Stress Tests, IMF Says

By Fabiana Negrin Ochoa

Asia's economic growth has persevered through the oil shock, but its resilience is likely to be tested by risks including weak fiscal positions and uncertainty over the durability of the artificial-intelligence boom, the International Monetary Fund has warned.

The region's economic fortunes are increasingly being determined by an ability to withstand external crises or benefit from AI investment.

Buffers are not unlimited, and policymakers need to shift away from a growth model based on a narrow set of drivers, the IMF said in its latest Asia-Pacific regional outlook released Thursday.

So far this year, Asian economies have adapted to war-driven energy disruptions more effectively than anticipated, despite their heavy reliance on the Middle East for fuel.

The tailwind from the AI investment boom has also exceeded expectations. The IMF projects regional growth at 4.8% this year, up from 4.4% forecast in the World Economic Outlook in April.

But Asia's economic growth will still be slower than the 5.0% pace in 2025, and is set to cool further to 4.4% in 2027, the IMF said.

Its individual projections underscore the growing divide between AI winners and the rest.

The economies of South Korea and Taiwan--the two clearest beneficiaries of global demand for AI-related goods--are projected to expand 3.3% and 10.7% respectively this year, it said, lifting the growth forecast for Korea by 1.4% and Taiwan's by 5.5%.

Other economies in the AI supply chain such as Malaysia and Singapore are also projected to grow at an accelerated pace.

Downward revisions were most pronounced in countries that face stronger inflationary pressures without benefiting from the tech boom, the fund said.

Growth for low-income economies in 2026 is now projected at 3.7%, and at 2.6% for Pacific island countries, compared with the respective 4.4% and 2.8% predicted in April.

Beneficiaries of AI face their own set of challenges, with gains concentrated in specific sectors. This creates uneven growth within tech-heavy economies and leaves them exposed to a potential market correction.

A pullback in AI-related investment or asset valuations would likely be disproportionately painful for Asia, the IMF said.

Policymakers also need to stay focused on inflation, as a prolonged conflict in the Middle East could fuel higher living costs, while extreme weather could further inflame food and energy prices.

Measures taken to endure the energy crisis cannot be sustained indefinitely, especially as global borrowing costs rise.

Episodes of market stress in major economies like the U.S., eurozone and the U.K. could spill over to Asian sovereign bond markets, pushing up yields and exacerbating already-elevated fiscal vulnerabilities, the IMF said.

"With 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," the fund warned, adding that these conditions make rebuilding fiscal space all the more urgent.

Longer term, the region needs labor-market reforms to tackle issues like shrinking workforces and underemployment, the IMF said.

Whether Asia's resilience holds will have global implications.

Asia has been the world's fastest-growing region in recent years, accounting for more than half of global growth, the IMF noted.

Write to Fabiana Negrin Ochoa at fabiana.negrinochoa@wsj.com

(END) Dow Jones Newswires

October 14, 2026 22:14 ET (02:14 GMT)