{
  "id": 3222905,
  "title": "AI is keeping Asia afloat as inflation weighs it down: Moody’s Analytics",
  "url": "https://urgent.news/2026/08/25/ai-is-keeping-asia-afloat-as-inflation-weighs-it-down-moodys-analytics",
  "topic": "ai",
  "section": "AI",
  "published": "2026-08-25T07:51:58.000Z",
  "source": {
    "name": "The Economic Times - Economy",
    "slug": "the-economic-times-economy",
    "url": "https://economictimes.indiatimes.com/news/economy/indicators/asia-pacific-economy-ai-boom-inflation-growth-outlook-2026-moodys-analytics/articleshow/133499042.cms"
  },
  "original_language": "en",
  "account": "The Asia-Pacific economy is experiencing two distinct growth trajectories, with the artificial intelligence (AI) boom bolstering exports and industrial activity, despite the negative impact of inflation, tighter monetary policies, and weak domestic demand on overall growth. According to Moody's Analytics' August 2026 Asia-Pacific outlook, regional growth is projected to decelerate to 4.2% in 2026 and 3.6% in 2027, down from 4.3% in 2025. The surge in inflation and stricter policies pose increasing pressure on demand, while geopolitical tensions and trade disruptions further exacerbate the situation.\n\nThe AI boom has mitigated a sharper slowdown by driving demand for semiconductors and other technology products; however, this strength in exports masks domestic demand trends that remain below pre-pandemic levels and global averages. For instance, nominal goods exports from South Korea and Taiwan surpassed Japan's for the first time in the first half of 2026.\n\nWhile the increase in electronics and machinery exports has offset weaknesses elsewhere, the report cautions that Asia-Pacific's exposure to the technology sector's momentum is a concern. Signs suggest that the AI-driven surge may be nearing a pause, as prices for various electronics have risen sharply, and shortages in hardware lines have impacted consumer markets, referred to as the \"RAMpocalypse\".\n\nThe AI boom not only supports the technology sector but also helps mask weaknesses in domestic economies, as household and business demand remains subdued. The export boom occurs amid rising inflationary pressure, driven by geopolitical upheavals and trade disruptions, which increase energy and food prices, and elevate the cost of doing business, thereby reducing real incomes and consumer and business spending across the region.\n\nHigher inflation would typically strengthen the case for central banks to raise interest rates, but policymakers face a challenging trade-off. Demand is already weak, and interest rates are already high across much of Asia-Pacific. Consequently, central banks have only modestly tightened monetary policy this year. Some central banks, including the Bank of Japan and Bank of Korea, may tighten further, including a potential longer period of elevated oil prices. This could necessitate additional rate increases and increase the pressure on policymakers to balance containing inflation against the adverse effects of higher rates on weak demand.\n\nThe weakening of Asia-Pacific currencies against the US dollar complicates the policy challenge further. For instance, the yen has fallen nearly 60% since early 2021, despite Japan's current account surplus and strong fiscal position. In late July, the US and Japan jointly intervened in the foreign-exchange market to support the yen, the first such action since 2011. The intervention benefits both Washington and Tokyo, as supporting the yen maintains demand for US Treasuries and allows stretched market positions to unwind gradually.\n\nThe Middle East conflict poses one of the biggest risks to the regional outlook. The fragile ceasefire between the US and Iran, along with an agreement to temporarily halt fighting and reopen the Strait of Hormuz, has collapsed. Fighting has resumed, and traffic through the waterway has slowed. Houthi forces' attacks on Saudi tankers and energy sites have widened the conflict and heightened the risks to regional energy supplies.\n\nA renewed escalation or a prolonged blockade of the Strait of Hormuz could lead to sharply higher oil prices, forcing countries to draw down reserves and increasing inflation while weakening economic growth. This would make the task of central banks even more challenging, as they must weigh the need to contain inflation against the potential damage to already weak demand caused by higher interest rates. Moreover, the conflict may threaten the AI boom itself, as higher energy prices and tighter financial conditions increase operating costs and interest rates, adding further pressure to the economics of AI investments.",
  "summary": "In the Asia-Pacific landscape, economies are diverging with AI-driven export demand providing a silver lining. Nonetheless, domestic consumption and business activities are hindered by inflation and soaring interest rates. India continues to shine as a key player but is not immune to the threats posed by rising oil costs and inflation.",
  "key_points": [],
  "editors_take": null,
  "illustration": null,
  "coverage": {
    "outlets": 1,
    "also_reported_by": []
  },
  "ai_generated": true,
  "disclaimer": "Summaries, key points and the editor’s take are written by software from other outlets’ reporting and may contain errors — always check the linked original."
}