IMF warns Asia faces growth risks from energy shocks

The International Monetary Fund has issued a warning regarding Asia's heightened vulnerability to energy shocks compared to other global regions. This sensitivity stems primarily from a deep-seated reliance on fuel imports from the Middle East. Krishna Srinivasan, director of the IMF’s Asia-Pacific department, noted that while the region began 2026 with a solid economic foundation, a prolonged conflict in the Middle East could trigger significant supply shortages and stifle growth. Asia’s economic landscape is particularly energy-intensive, with the consumption of Brent Crude Oil and Natural Gas accounting for approximately 4% of the region's gross domestic product. This figure is nearly double the energy intensity seen in Europe. Because the region possesses limited domestic production capacity, net imports of these fuels represent about 2.5% of GDP. The region's resilience has been bolstered by lower-than-anticipated tariffs from the United States, a robust technology cycle driving exports, and relatively loose financial conditions. However, these advantages are being countered by the geopolitical tensions currently affecting global energy markets. > This is a shock, which is going to affect Asia more than other regions. Srinivasan warned that the consequences of a sustained disruption would manifest as higher inflation, weakened growth, and deteriorating current account balances. Under the IMF's standard reference scenario, growth in Asia is expected to moderate from 5% in 2025 to 4.4% in 2026 and 4.2% in 2027. However, in more severe or adverse scenarios, the cumulative growth impact could be a reduction of 1 to 2 percentage points through 2027. > If you have a price shock and shortages, that could lead to greater non-linearities, and so the growth impact would be that much more acute, especially if the shock is not transient. Beyond immediate price increases, a prolonged conflict could result in shortages of oil-related chemicals and gas essential for manufacturing machinery and food production. The IMF currently anticipates that inflation across Asia will rise from 1.4% in 2025 to 2.6% this year before settling at 2.4% in 2027. To navigate these challenges, the IMF advises Asian central banks to remain agile. Policymakers are encouraged to monitor inflation expectations closely and be prepared to tighten monetary policy if those expectations become unanchored. Furthermore, given the limited fiscal buffers remaining after the pandemic, any government support must be precisely targeted toward the most vulnerable populations.