The International Monetary Fund projected on Thursday that Asia’s economy will grow 4.8% this year and 4.4% in 2027, a slowdown from the 5.0% expansion of 2025, even after the Fund lifted both figures above its April estimates. The forecast appeared in the Fund’s Asia-Pacific regional outlook, released during the IMF and World Bank annual meetings in Bangkok, where debt loads, bond yields and the staying power of the artificial-intelligence boom have dominated the agenda all week.
The upgrade leans on the same technology cycle that traders were dumping on Thursday. The Fund said its revisions largely reflected a lift from the AI boom for advanced Asian economies, which it now expects to grow 3.2% this year, up from 2.5% in 2025. Emerging Asia, still the region’s main growth engine in the Fund’s telling, is projected to cool to 5.1% from 5.6% because of higher energy prices. A year ago, the Fund’s October 2025 outlook put regional growth for 2026 at 4.1%, a baseline the current projection clears by a wide margin, as ATN, New York’s check of the earlier report confirms.
Markets delivered their own verdict within hours. Japan’s Nikkei share average fell nearly 5% on Thursday as technology stocks took heavy losses on concern over the AI sector’s profitability, and hot US inflation figures sparked fears of higher interest rates. South Korea’s KOSPI also triggered a circuit breaker in a tech-led selloff the same day, ATN has learned. The Fund’s own report had already noted portfolio outflows from South Korean technology stocks, even as foreign investment into the region stayed generally robust.
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Krishna Srinivasan, director of the Fund’s Asia and Pacific Department, told a press conference that long-term inflation expectations remain broadly anchored across the region. Central banks should still keep their focus on price stability, he said, and be ready to raise rates wherever expectations are looser, policy frameworks are less credible or inflation is more persistent. He added that the independence of central banks “must be maintained” if those efforts are to work.
On spending, Srinivasan said public debt remains above pre-pandemic levels, which leaves little room for additional fiscal outlays. Any support, he said, should be targeted and temporary. He urged governments in the region to avoid blanket fuel subsidies and price controls, which he said could prove more costly than the problems they are meant to solve.
The Fund described the balance of risks as “tilted to the downside” and named three threats. The first is the energy shock tied to the Iran war: a prolonged stalemate in the Middle East, the Fund said, could keep commodity prices high and deplete oil reserves. The second is a correction in AI demand, which the Fund said could weigh on global growth and would likely hit Asia hardest because of the region’s extensive exposure to the AI production chain. The third sits in the bond market.
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Global yields are climbing, and the Fund said market stress in major sovereign issuers, including the United States, the United Kingdom, the euro zone and Japan, could spill into Asian bond markets. That would push local yields higher and worsen fiscal vulnerabilities that are already elevated. The Fund expects US monetary policy to keep tightening later this year, and it said that combination, together with fiscal pressure across most major advanced economies, is likely to keep upward pressure on yields across Asia and the Pacific. An abrupt tightening of financial conditions would raise debt-servicing costs for governments that borrow heavily, it said, and exchange rates and capital flows have grown more volatile since the energy shock, with several emerging economies facing depreciation pressure.
The week’s market backdrop has been rough for the region’s technology names. The Nikkei lost ground for a fourth straight session on Tuesday, sliding 1.82% to 67,777, on the back of a selloff in AI-related shares after weakness in US chip stocks. Last Friday, Japanese equities fell after a report that OpenAI’s annualized revenue ran $20 billion below what the company had signaled; SoftBank Group, a major investor in OpenAI, sank 5.4% in early trading that day. ATN could not independently verify the revenue report.
Central bankers have been under pressure from the other side of the ledger. Federal Reserve Chair Kevin Warsh said at the Jackson Hole symposium in late August that US inflation remained high, remarks that fed expectations of rate increases in the United States and Japan. On Tuesday, the Fund also raised its 2026 growth projection for Japan to 0.7%, up 0.1 percentage point from its July forecast, citing support measures that partly cushion the hit from costlier energy.
Official data released the same day showed how much of that energy bill Japan is absorbing: wholesale prices in September rose 6.8% from a year earlier, while yen-based import prices jumped 24.5%.
