The International Monetary Fund published an analysis of how the Middle East conflict and the resulting energy supply shock are testing Asia’s economic resilience, projecting that the region will remain a key driver of global growth but with weaker external balances, higher inflation, and less room for policy support. Under the reference forecast in the World Economic Outlook, which assumes the shock proves transient, Asia’s growth is expected to moderate from 5% in 2025 to 4.4% in 2026 and 4.2% in 2027, with China and India contributing about 70% of regional growth. The IMF points to Asia’s high exposure to imported oil and gas, with net imports around 2.5% of economic output and energy use about 4% of GDP, alongside heavy reliance on flows through the Strait of Hormuz. Inflation in emerging Asia is projected to rise to 2.6% in 2026 (up from 1.1% in 2025), and the region-wide inflation forecast for 2026 is 0.4 percentage point higher than the IMF’s January forecast. In downside scenarios where the shock is larger and more persistent, the IMF estimates materially weaker growth and higher inflation, including almost a 1 percentage point decline in 2026 growth versus the reference scenario in an adverse case and a cumulative output loss of about 2 percentage points by 2027 in a severe case, with headline inflation 2.3 percentage points higher in 2027. On policy, the analysis argues for protecting vulnerable households while allowing price signals to adjust, keeping monetary policy agile as risks of second-round inflation rise, and using exchange-rate flexibility as the first line of defense, with foreign exchange intervention limited to disorderly markets in line with the IMF’s Integrated Policy Framework. It also recommends that any fiscal support be temporary and targeted (preferably via cash transfers) and financed through budget reprioritization or accompanied by clear consolidation plans, while cautioning that broad fuel subsidies and price caps are costly and difficult to unwind. The IMF also highlights structural reforms, including stronger social safety nets, measures to boost domestic demand and job-rich growth, and investment in energy efficiency, grids, and alternative energy to reduce vulnerability to future fuel-import shocks.
International Monetary Fund 2026-04-16
International Monetary Fund projects Asia growth to ease to 4.4% in 2026 as the Middle East energy shock lifts inflation
The International Monetary Fund says the Middle East conflict and related energy shock are straining Asia’s economic resilience, weakening external balances, lifting inflation, and reducing policy space, even as the region remains the main driver of global growth. Under the World Economic Outlook baseline, Asia’s growth is projected to slow from 5% in 2025 to 4.4% in 2026 and 4.2% in 2027, with China and India providing about 70% of regional growth and inflation in emerging Asia rising to 2.6% in 2026. The IMF urges temporary, targeted fiscal support, agile monetary policy, exchange-rate flexibility, and structural reforms, including stronger social safety nets and investment in energy efficiency and alternative energy.