IMF Sees Asia’s Growth Slowing in 2027 as Energy Shock and Rising Bond Yields Raise Risks

Asia’s economic growth is expected to slow to 4.4% in 2027 as an energy shock, rising global bond yields and uncertainty over artificial intelligence demand increase risks to the region’s outlook, the International Monetary Fund said.

In its Asia-Pacific outlook released during the annual meetings in Bangkok on October 15, the IMF projected regional growth of 4.8% in 2026, compared with 5% in 2025. Both the 2026 and 2027 forecasts were higher than its April projections, largely reflecting stronger AI-related activity in advanced Asian economies.

The improvement in those forecasts comes alongside a warning that financial and commodity-market pressures could weaken momentum.

“Risks to the outlook remain tilted to the downside,” the IMF said, citing the possibility that a prolonged stalemate in the Middle East conflict could keep commodity prices elevated and deplete oil reserves.

Higher bond yields threaten public finances

The IMF also warned that monetary tightening and fiscal pressures in major advanced economies could push borrowing costs higher across Asia-Pacific.

Stress in sovereign debt markets in the United States, Britain, the eurozone or Japan could spread to Asian bond markets, raising yields and increasing governments’ debt-servicing expenses.

“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 said.

Uncertainty over the US monetary policy path could also keep regional financial markets volatile. Exchange rates and capital flows have become more unsettled since this year’s energy shock, with several emerging economies experiencing depreciation pressures.

Foreign investment inflows have remained generally robust, although the IMF noted that they have coincided with portfolio outflows in some markets, including South Korean technology stocks.

Energy costs weigh on emerging Asia

Emerging Asia will remain the region’s main growth engine, but its expansion is forecast to moderate to 5.1% in 2026 from 5.6% last year as higher energy prices weigh on activity.

Advanced Asian economies are expected to accelerate to 3.2% growth this year from 2.5% in 2025, supported by the AI investment boom. That divergence highlights the uneven effects of the energy shock and technology spending across the region.

The IMF also warned that a correction in AI demand could weaken global growth, with particularly pronounced effects in Asia because of its extensive exposure to AI production chains.

IMF urges targeted support

Asian central banks should remain focused on price stability and respond promptly if inflation pressures become more persistent, the IMF said.

Governments should keep fiscal assistance targeted and temporary. The fund advised against blanket fuel subsidies and price controls, which could become costly as energy pressures persist.

The outlook leaves regional policymakers facing simultaneous pressures: higher energy costs threaten household purchasing power, while rising yields could make government support more expensive. A further disruption in commodity markets or a reversal in AI demand would test how much room Asian economies retain to protect growth without adding to their financial vulnerabilities.