Asia Faces Energy Shock: A Looming Crisis

Asia's heavy reliance on Middle East fuel renders it more susceptible to an energy shock compared to other regions, according to the International Monetary Fund. A prolonged conflict could severely impact growth as supplies dwindle, warns Krishna Srinivasan, director of IMF's Asia-Pacific department.

While some favorable economic conditions have emerged, such as reduced U.S. tariffs and a strong tech cycle benefiting exports, they only partially mitigate the ongoing energy crisis. Asia's significant dependence on oil and gas, accounting for nearly twice the GDP share compared to Europe, keeps it exposed to potential shortages triggered by the Middle East conflict.

In the IMF's scenarios, Asia's growth is projected to slow from 5% in 2025 to 4.2% in 2027, with more adverse conditions eroding growth sharply. Regional inflation is expected to rise from 1.4% in 2025 to 2.6% this year, necessitating vigilant monetary policies among Asian central banks amid limited fiscal resources.