Asia's Economic Resilience Is Being Tested by the Energy Shock
IMF Blog, April 16, 2026
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- Authors: Andrea Pescatori, Krishna Srinivasan
- Published: April 16, 2026
Baseline outlook and growth projections
- Asia entered 2026 on a strong footing after resilient growth in 2025 despite US tariffs and trade policy uncertainty.
- Reference forecast (assuming the energy shock proves transient):
- Regional growth: "5 percent" in 2025; projected to moderate to "4.4 percent" in 2026 and "4.2 percent" in 2027.
- China and India expected to contribute "70 percent" of the region’s growth.
- Downside risk: Should the shock persist or intensify, growth through 2027 could be reduced cumulatively by "1 to 2 percent".
Energy dependence and the nature of the shock
- Asia’s exposure to oil and gas:
- Net oil and gas imports equal about "2.5 percent" of economic output for the region.
- Asia consumes about "38 percent" of the world’s oil and "24 percent" of its natural gas.
- Asia accounts for about "35 percent" of global refining capacity.
- The region’s oil and gas use amounts to about "4 percent" of gross domestic product, nearly double Europe’s share.
- Oil and gas use exceeds "10 percent" of GDP in economies such as Malaysia and Thailand.
- Asia is the main buyer of oil and gas shipped through the Strait of Hormuz, accounting for about "80 percent" of LNG exported through the waterway.
- Immediate risks:
- Direct shock to refiners, utilities, and factories.
- Risk of local shortages of petroleum products and gas in countries with limited stockpiles.
- Potential disruption of fertilizers, petrochemicals, helium, sulfur — raising the risk of broader supply-chain disruptions.
Transmission channels to the broader economy
- Terms-of-trade channel: High energy prices worsen terms of trade for net importers, transferring income to fossil fuel exporters.
- Real income channel: Higher fuel and electricity prices reduce households’ real incomes.
- Cost-push channel: Energy as an input raises production costs across transport, industry, petrochemicals, and fertilizers, reducing business profits and feeding into second-round inflation pressures.
- Financial channel: Higher bond yields, a stronger US dollar, currency depreciation, and higher risk premia—especially for fossil fuel importers—magnify the shock’s impact.
- Country-specific factors (fossil fuel intensity, pricing regimes) affect the magnitude of impacts.
Shifting outlook across subregions and inflation dynamics
- Growth:
- Most of the region: projected to moderate from January baseline.
- Korea: exception, benefiting from strong links to the technology cycle.
- Emerging Asia: remains main global growth engine but is projected to slow by about "0.5 percentage points" to "4.9 percent" in 2026, then stabilize in 2027.
- Advanced Asia: similar deceleration expected.
- Southeast Asia and Pacific island countries: deceleration expected, with considerable variation.
- Inflation:
- Regional rise to "2.6 percent" in 2026 — "0.4 percentage point" more than the January forecast and up from "1.4 percent" in 2025.
- Emerging Asia inflation projected to increase from "1.1 percent" in 2025 to "2.6 percent" in 2026, driven in part by upward revisions in China and India.
- Advanced Asia: mixed — inflation pressures have eased in Japan but remain persistent in Australia, where the 2026 inflation forecast has been revised up significantly.
Adverse and severe scenarios, and differential impacts
- Reference forecast assumes a conflict of limited scope with disruptions fading gradually.
- WEO adverse scenario:
- Larger and more gradual energy shock relative to reference.
- GDP growth in the major economies of the region would decline by almost "1 percentage point" in 2026 relative to the reference scenario.
- Larger losses in more import-dependent and fossil fuel-intensive economies.
- WEO severe scenario:
- Even larger shock lasting well into 2027 before fading.
- Cumulative output loss of about "2 percentage point" by 2027 for major economies relative to the reference scenario.
- Headline inflation would be "2.3 percentage points" higher in 2027.
- Economies relying on imported energy, with limited fiscal space, or highly exposed to the Middle East conflict (through remittances, tourism, or commodities) would be disproportionately hurt.
- Country examples of vulnerability:
- Sri Lanka: dependence on imported oil, remittances, and tourism transiting from the Gulf.
- Lao P.D.R., Nepal, Myanmar: agriculture-dependent economies where higher fertilizer costs could lower incomes and raise food prices.
- Malaysia and Thailand: oil and gas use exceeds "10 percent" of GDP.
Policy responses and priorities
- General principles:
- Protect vulnerable people.
- Let prices adjust to preserve demand signals.
- Anchor inflation expectations.
- Accelerate structural reforms to reduce energy import dependence and strengthen resilience.
- Fiscal policy:
- Support should be temporary and targeted at vulnerable people and viable businesses.
- Cash transfers can supplement personal income.
- Support should be financed by reprioritizing budgets where possible; otherwise, clearly communicate consolidation plans.
- Broad fuel subsidies, tax cuts, and general price caps are costly, often regressive, and hard to unwind; they may raise fiscal costs quickly.
- Country-specific room for support:
- Sri Lanka and Cambodia can provide support but it should be targeted and consistent with rebuilding or preserving fiscal space.
- Bangladesh faces sharper tradeoffs due to limited budgetary room for broad support.
- Monetary and exchange-rate policy:
- Inflation expectations broadly anchored so far in most economies, giving some room to look through first-round headline inflation.
- Monetary policy should remain agile; a prolonged shock could weaken currencies and generate more persistent inflation.
- Advanced-economy interest rates generally expected to remain on hold or tighten to maintain disinflation.
- Japan: central bank can look through first-round energy shock and continue withdrawing accommodation as inflation expectations rise to near target.
- Australia: where inflation is above target and domestic demand pressures remain firm, scope to look through the shock is limited.
- Thailand and the Philippines: where inflation remains below target, further rate cuts can be paused to preserve room for easing later.
- Exchange-rate flexibility should remain the first defense; intervention should be limited to addressing disorderly markets, consistent with the IMF’s Integrated Policy Framework.
- Structural reforms:
- Strengthen social safety nets to protect people without resorting to general subsidies.
- Policies to balance job-rich growth and stronger domestic demand to reduce dependence on external demand.
- Address youth unemployment and skill mismatches to boost productivity and inclusion.
- Manage Artificial Intelligence adoption through policies on skills, inclusion, and governance to avoid widening gaps.
- Deepen regional trade, services, and investment integration to strengthen resilience.
- Invest in energy efficiency, power grids, and alternative energy to protect against future fuel-import shocks.
Source: Asia's Economic Resilience Is Being Tested by the Energy Shock (April 16, 2026), Andrea Pescatori and Krishna Srinivasan, IMF blog