(Credit: Kim Haughton/IMF Photo)
The world’s economic growth engine has proven resilient, but making this durable requires adapting to AI and other transformations
October 15, 2026/IMFBlog
By Alasdair Scott, Krishna Srinivasan
The Asia-Pacific region remains resilient despite the energy shock and the tariffs and trade restrictions that disrupted supply chains last year. The resilience is notable for a region that has a high intensity of energy use and large dependence on imported fuel supplies, especially from the Middle East.
We’ve upgraded our regional growth projection for this year to 4.8 percent, from 4.4 percent six months ago, while raising the forecast for next year to 4.4 percent, from 4.2 percent. The largest upgrades are for India, Korea, and parts of Southeast Asia that are benefiting from strong demand along the tech supply chain. Although Asia’s overall growth rate is likely to slow from 5 percent last year, the region would remain the engine of the global economy, providing two-thirds of global growth.
The region’s resilience, however, isn’t uniform. Overall growth numbers reflect major differences across countries. Projections for low-income and Pacific island economies have been revised down, substantially so in some cases. Fuel prices have surged, exacerbating cost of living pressures that had already been accumulating before the oil shocks. For example, diesel is crucial for electricity generation in low-income countries, while jet fuel is essential for air travel, especially to Pacific island countries. And resilience is not always uniform within countries—many show signs of so-called “K-shaped” growth, with some groups or sectors prospering while others fall behind.
Reasons for resilience
One key reason for resilience is that many economies have adapted better than anticipated to the oil shocks. China has been able to draw on oil reserves and reduce demand, including due to greater use of renewables. India and Japan have been able to find alternative sources of supply. Across Asia, governments have deployed policy measures to protect households and firms, such as fuel price caps and subsidies.
Another reason for resilience is the significant AI-related boost in global demand for tech goods and services. This is seen most prominently in demand for high-end semiconductors and other components, as well as massive investments in data centers.
Trade has also held up better than feared. Exports—even of non-tech products—have continued to grow, and intra-Asia trade has surged even as commerce with the United States fell. Asia-Pacific governments have resisted the temptation to engage in restrictive practices—indeed, they have forged ahead with deeper regional trade agreements.
We see reason for cautious optimism. But policymakers still face significant challenges. Oil prices are likely to stay high and volatile for longer than previously expected. There are limits to adaptation, such as how far crude inventories can stretch. Fiscal support in many economies is broad based, and often untargeted, adding to pressure on public finances.
This comes as yields on sovereign debt rise sharply around the world, including in Asia. Investors are increasingly concerned about the sustainability of public finances. Many Asian economies have reduced deficits, but some have delayed consolidation amid mounting spending pressure from aging populations, defense commitments, and rising interest bills.
Other challenges are more structural. Many Asian economies still have young populations. The region will need to create nearly 150 million jobs over the next decade. Previously, manufacturing had generated employment, but that industry is increasingly capital intensive—putting emphasis on the need to create good knowledge jobs in services sectors.
AI and employment
As this transition gathers momentum, AI is another powerful force reshaping the region’s economies. In our latest Regional Economic Outlook, we look at millions of online job postings, providing some of the first evidence on how AI is affecting labor markets across Asia.
Our analysis suggests that demand from employers fell with the onset of AI in jobs where AI can be used more extensively than in occupations with less exposure, by as much as 10 percent. But that decline has stabilized, even while AI has become more capable over time. We also find that employers increasingly want workers that can use AI to do more, from sharpening prompts to connecting AI with the data and expertise in workplaces.
What does that imply? It suggests that AI is reshaping work more than eliminating it. Employers still want people for knowledge-based work, even as AI has become much more capable at tasks previously thought to only be possible by humans.
Our findings raise important policy questions. How can countries create jobs as AI changes which industries are best able to generate them? What kind of education do young people need for an AI-driven labor market? While answers remain uncertain, it’s clear that policymakers must address these questions to sustain the region’s economic resilience.
—This blog is based on the Asia-Pacific Department’s October 2026 Regional Economic Outlook, including the report’s analytical chapter, “Labor Markets in Asia: Challenges and Opportunities in the AI Era.”
