Asia Faces Limits in Absorbing Oil Shock, Warns World Bank
According to the World Bank, economies in East Asia and the Pacific may deplete their resources while attempting to mitigate the impact of an energy shock expected to continue into the following year.
The governments in the region have reacted more forcefully than those in other areas as the US-Iran conflict pushed international prices higher, and they have depended more on subsidies, according to the World Bank's East Asia & Pacific Economic Update published on Tuesday.
The method might be deemed "unsustainable," it stated, predicting that oil exports from the Middle East will not reach pre-conflict levels until around mid-2027. "Such measures might delay the necessary behavioral adjustments if the shock is long-lasting instead of short-lived, while also incurring fiscal costs and reducing foreign currency reserves."
The World Bank highlighted Indonesia, Thailand, and Vietnam, which have all implemented measures to reduce retail gasoline prices and have experienced a depletion of their dollar reserves by 15% to 40% this year.
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Currently, the risks associated with energy are surpassed by what the bank refers to as the "AI tailwinds."
It predicts a 4.5% increase this year in East Asia and the Pacific, raising the estimate by 0.3 percentage points from the previous forecast. This is mainly thanks to robust investment and exports driven by the artificial-intelligence surge. The forecast for 4.4% growth in the coming year remained the same.
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The World Bank stated that an extended energy crisis might jeopardize much of that resilience, particularly if it coincides with a decline in the AI sector and El Niño weather disturbances. Increased energy expenses have impacted manufacturing, and the rise in transportation costs has affected consumer demand.
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“A fresh increase in energy prices could be more harmful to economic activity than previously noted, especially as the impact from elevated inflation and stricter financial conditions intensifies,” it stated.