The International Monetary Fund (IMF) has projected slower economic growth for developing Asian economies in 2026, with rates expected to decline to 5.1 percent from 5.6 percent in 2025. The forecast was detailed in the IMF’s latest World Economic Outlook report, released during the Annual Meetings of the IMF and the World Bank Group held in Bangkok.

The report attributes the slowdown primarily to the ongoing crisis in the Middle East, which has driven up global oil prices and created economic challenges for energy-importing nations. Despite this, demand for artificial intelligence (AI) products and investments in AI-related infrastructure are seen as significant growth drivers for the region. The IMF noted that several emerging Asian countries, including Malaysia, Singapore, South Korea, and Vietnam, are well integrated into the global AI supply chain and stand to benefit from rising data center investments and a positive technology cycle.

Silvana Tenreyro, director of the IMF’s research department, described China and India as the key engines of growth in developing Asia. While the region overall has demonstrated resilience, partly due to the AI boom, the benefits are not evenly distributed. The report highlights a growing divide between countries and sectors closely linked to AI and those more vulnerable to energy price shocks and weaker demand.

The IMF pointed out that countries heavily reliant on energy imports but outside the technology value chain face the most difficult prospects. Conversely, energy exporters outside the Middle East conflict zone and those with strong AI integration are expected to fare comparatively better. The report also raised concerns over emerging risks to the outlook, with factors such as renewed Middle East tensions, the anticipated El Niño weather phenomenon potentially disrupting food supplies, and climbing borrowing costs likely to weigh on growth and fiscal stability.

The AI surge, while propelling global growth, also presents potential vulnerabilities, including concentrated supply chains, cybersecurity threats, and financial market volatility, underscoring limits to economic resilience. Tenreyro emphasized the need for countries to shift from coping strategies to rebuilding fiscal space and strengthening supply-side resilience to support sustainable growth.

Other experts, including Kevin Gallagher, director of the Boston University Global Development Policy Center, expressed caution about the IMF’s optimistic tone, suggesting the report underestimates the severity of economic pressures stemming from rising import bills due to the Middle East conflict and climate change-related shocks such as floods and droughts.

Globally, the IMF forecasts real GDP growth of 3.1 percent for 2026, slightly above earlier predictions, thanks largely to strong AI investment offsetting some of the energy-related challenges. However, the benefits remain concentrated, with just 32 countries contributing to 95 percent of global growth, down from 54 countries earlier in the year.

The outlook for Middle Eastern economies directly affected by the conflict reflects severe contractions, with Saudi Arabia’s GDP now expected to contract 3.3 percent in 2026, down from earlier growth projections. Other Gulf nations, including Iran, Iraq, Kuwait, Qatar, and the United Arab Emirates, are also forecast to experience substantial recessions next year.

Among major economies, growth forecasts remain steady or slightly improved due to AI-related activities. The United States is expected to grow 2.3 percent in both 2026 and 2027, supported by private consumption, tax cuts, and AI investment. The euro zone’s growth forecast was upgraded to 1.1 percent for 2026, supported by AI adoption and increased defense spending. The United Kingdom’s forecast also improved to 1.3 percent growth for 2026.

China’s growth is projected at 4.5 percent in 2026 and 4 percent in 2027, modestly revised downward amid high oil prices and soft domestic demand despite strong exports. India remains the fastest-growing major economy, with growth expected at 7 percent for both years, supported by robust domestic demand, services, and AI investment.

The ongoing AI expansion is also projected to maintain upward pressure on inflation, with global headline consumer price inflation forecast at 4.7 percent for 2026 and 4.1 percent for 2027.