IMF sees Asian growth slowing as AI boom divides region

Asia’s economic growth is set to slow over the next two years even as an artificial-intelligence investment boom supports semiconductor exporters and some of the region’s largest economies, according to the International Monetary Fund (IMF).

The IMF expects Asia-Pacific economies to grow 4.8% in 2026, down from 5% last year, before slowing further to 4.4% in 2027.

The 2026 estimate is stronger than the IMF’s 4.4% forecast in April, reflecting better performance in China and India and a surge in demand for semiconductors, data-center equipment and other technology products linked to AI.

The improvement, however, is heavily concentrated.

Advanced Asian economies are expected to grow 3.2% this year, up from 2.5% in 2025, helped by the technology cycle. Growth is then expected to ease to 2% in 2027.

The IMF has raised its forecasts particularly sharply for South Korea, Taiwan and Hong Kong, which have benefited from investment in AI infrastructure and semiconductor demand.

Emerging and developing Asian economies face a different trajectory. Growth in that group is forecast to slow to 5.1% this year from 5.6% in 2025 and to 4.9% next year. India remains the fastest-growing major economy, with the IMF expecting growth of about 7% this year and next. China has also benefited from stronger AI-related trade and manufacturing demand.

The divergence matters because the same forces supporting technology exporters are increasing costs for countries that import fuel but participate little in the AI supply chain.

Energy remains one of the largest risks.

The continuing Middle East conflict has kept oil prices high, raising inflation and import bills across Asia. The IMF has warned that a more severe disruption that drives oil toward $130 a barrel would weaken global growth further and intensify inflation.

Higher government bond yields are another concern. Rising borrowing costs in the US and other major economies can pull capital out of emerging Asian markets, weaken currencies and push domestic interest rates higher. The IMF said recent market volatility has already shown how quickly those pressures can spread through regional financial systems.

The AI boom itself has become a source of risk. Technology shares across Asia have risen rapidly as investors price in years of demand for chips and data centers. The IMF said valuations, increasing investor leverage and concentration in a relatively small number of companies have raised the potential for a sharp correction.

“A correction in AI-related investment or asset valuations could weigh disproportionately on Asia given its central role in global technology supply chains,” the fund said. That warning comes as semiconductor shares suffer one of their steepest global selloffs of the year amid concerns over the cost of funding enormous AI infrastructure projects.

The IMF’s latest global analysis shows AI-related trade has already become an important source of economic growth. Global trade increased 8.3% between 2023 and 2025, while trade linked to AI increased 29%. Without that AI component, overall trade would have risen about 4.6%, according to IMF calculations.

Asia has captured an unusually large share of that expansion because semiconductor manufacturing, electronics assembly and technology supply chains are concentrated in the region. But the economic payoff depends on whether massive investment eventually produces productivity gains rather than simply higher asset prices and debt.

The IMF also warned about El Niño, which could disrupt agriculture, fisheries and hydropower production, adding further pressure to food and electricity prices. Against that background, the fund urged Asian central banks to keep inflation under control and protect their independence rather than responding to weaker growth with premature rate cuts.

Governments facing high fuel prices should use targeted support for vulnerable households rather than broad subsidies or price controls, the IMF said. Such measures can become expensive and distort demand while doing little to address the underlying supply shock.