Asia’s economic growth is expected to remain above the global average over the next two years, but the International Monetary Fund (IMF) has warned central banks in the region to stay focused on price stability as an oil shock linked to the ongoing Middle East conflict pushes up near-term inflation expectations.
Krishna Srinivasan, Director of the IMF’s Asia and Pacific Department, said central banks should be prepared to raise interest rates where inflation expectations are becoming less anchored, inflation frameworks lack credibility or price pressures are proving persistent.
“Monetary policy should continue to focus on price stability,” Srinivasan said at a press briefing in Bangkok on Thursday, held alongside the IMF-World Bank Annual Meetings and the release of the Fund’s Regional Economic Outlook for Asia and the Pacific.
He said central banks must communicate clearly and maintain their independence even as governments respond to the economic effects of higher energy prices.
“As a result of the oil shocks, near-term inflation expectations have risen, but long-term expectations remain broadly anchored,” Srinivasan said.
The IMF expects Asia’s growth to slow from 5% in 2025 to 4.8% in 2026 and 4.4% in 2027. However, the forecasts are higher than the Fund’s April projections of 4.4% for 2026 and 4.2% for 2027.
Srinivasan said the region would contribute more than two-thirds of global growth despite facing pressure from higher energy costs, trade disruptions and uncertainty around the artificial intelligence-driven technology boom.
“Asia’s growth is projected to slow, but continue to outpace the world,” he said.
India’s growth outlook has also improved. The IMF’s World Economic Outlook projects India’s growth at 7% in both 2026-27 and 2027-28. The projection for 2026 is 0.5 percentage point higher than the Fund’s April forecast.
“Growth has surprised on the upside in India,” Srinivasan said, adding that South Korea and other technology-exporting economies had also seen upgrades to their growth forecasts.
However, the outlook is uneven across the region. Countries that are less exposed to the technology boom have faced downward revisions, including low-income economies such as Cambodia and Bangladesh and some Pacific Island nations.
The IMF said monetary policy decisions will depend on the inflation outlook and how economies are affected by the energy shock and technology investment.
The case for tighter monetary policy is stronger in economies closely linked to technology supply chains, where inflation was already above target before the Middle East conflict and remains elevated.
By contrast, energy-importing economies outside these supply chains, where inflation is at or below target, have a stronger case for a cautious approach.
The Fund said monetary policy should be tight enough to bring inflation back to target in a timely manner. Further tightening may be needed where higher commodity prices and technology investment add to lasting inflationary pressures.
The IMF identified three major forces shaping Asia’s economic outlook this year: the energy shock that began in February, the artificial intelligence-driven technology boom and the trade shock following tariff increases in 2025.
The region’s dependence on oil and gas imports from the Middle East has left many economies exposed to higher energy costs.
Srinivasan cautioned that Asia’s resilience has limits, pointing to limited inventories and the rising fiscal cost of government support measures.
Public debt remains above pre-pandemic levels, while governments have less room to increase spending. Debt in advanced Asian economies, excluding Japan, is expected to continue rising, while debt in emerging Asia, excluding China, is projected to remain high.
The IMF said support for households and businesses affected by economic shocks should be targeted rather than aimed at keeping prices artificially low.
“The idea would be protect people and not prices,” Srinivasan said.
The Fund also warned that risks to the outlook remain tilted to the downside. These include prolonged or renewed tensions in the Middle East, a reassessment of profits and productivity gains linked to AI, fiscal vulnerabilities, higher government borrowing costs and the possibility of an El Nino weather event adding to inflationary and fiscal pressures.
On the positive side, stronger-than-expected AI investment, faster productivity gains and better trade arrangements could support growth.
The IMF identified four reform priorities for Asia: addressing youth unemployment and skill gaps as AI changes the workplace, strengthening social protection, improving energy security and deepening regional integration.
The Fund’s analysis found that hiring for jobs exposed to AI had fallen by about 10% before stabilising. Srinivasan said this suggested that AI was changing the nature of work rather than simply eliminating jobs, as employers increasingly looked for workers with AI-related skills.
Globally, the IMF projects economic growth of 3.1% in 2026 and 3.4% in 2027. Global inflation is expected to reach 4.7% this year before easing to 4.1% in 2027.
The Fund said economies close to the technology boom and less exposed to the energy shock were holding up better, while energy importers outside the technology supply chain faced higher import bills and weaker incomes.