The Zhitong Finance App learned that the International Monetary Fund (IMF) predicted on Thursday that Asia's economic growth will slow down next year, and warned that risks from the energy shock caused by the Iran war, a possible correction in the artificial intelligence (AI) boom, and spillover effects from rising global bond yields are increasing.
In the agency's report on the outlook for the Asia-Pacific region, the IMF also stated that uncertainty about the path of US monetary policy may cause continued fluctuations in Asian financial markets.
The IMF said in a report released during its annual meeting in Bangkok that “since this year's energy shock, fluctuations in exchange rates and capital flows have intensified,” and many emerging economies are under pressure to depreciate their currencies.
The report said that although the overall inflow of foreign capital in the region remains strong, at the same time, there have been some capital outflows, such as divestment from South Korean technology stocks.
“U.S. monetary policy is expected to continue tightening later this year. The combination of monetary policy tightening and fiscal pressure in most major developed economies may cause yields in the Asia-Pacific region to continue to face upward pressure.”
According to the IMF, the Asian economy is currently expected to grow 4.8% in 2026 and 4.4% in 2027, which is higher than the April forecast, but it is still slower than the 5.0% growth rate in 2025.
According to the report, this increase largely reflects the boost given by the AI boom to developed Asian economies, and its growth rate is expected to accelerate from 2.5% last year to 3.2% in 2026.
The report points out that Asian emerging economies are still the main growth engines in the region, but due to the impact of higher energy prices, their growth rate is expected to slow to 5.1% in 2026 from 5.6% last year.
The IMF said that “future risks are still biased downward,” and the long-term standoff in the Middle East conflict may keep commodity prices high and consume oil reserves.
The pullback in AI demand is likely to drag down global growth, and given Asia's high level of participation in the AI industry chain, the impact may be particularly obvious.
According to the report, as global yields rise, market pressure from major sovereign bond issuers such as the US, the UK, the Eurozone, and Japan may spill over to the Asian bond market, boosting yields and increasing already high fiscal vulnerability.
The IMF said, “Since the public debt and financing needs of most economies in the region are still high, a sudden tightening of financial conditions may drive up debt repayment costs and further increase the pressure on public finance.”
Focus on price stability
This week's IMF annual meeting mainly revolved around concerns about growing debt, rising bond yields, and the risk of an AI boom. These concerns are compounded by energy shocks, causing even more headaches for policymakers. The energy shock, blamed on the Middle East conflict, has triggered an overall rise in inflation.
Japan's Nikkei index plummeted nearly 5% on Thursday. Technology stocks were hit hard by market concerns about the profitability of the AI industry, while hot US inflation data raised concerns about higher interest rates.
IMF Asia Pacific Director Krishna Srinivasan said at a press conference that central banks should continue to focus on price stability even though long-term inflation expectations in Asia are generally fixed.
He said, “In a situation where expectations are weak, policy frameworks are less credible, or inflation is more stubborn, central banks should clearly communicate and be prepared to tighten policies. To this end, the independence of the central bank must be preserved.”
Srinivasan said that as public debt is still higher than pre-pandemic levels, space for further fiscal spending is increasingly limited.
He said fiscal policies should be targeted and temporary, and urged countries in the region to avoid comprehensive fuel subsidies or price controls, as these measures could be more costly.