Asia Views: Another Shock to Asia's System
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Goldman Sachs highlights that the energy supply shock triggered by the Iran conflict poses short-term headwinds for Asian economies, as most major regional players are net oil importers. The firm's commodities team forecasts a further rise in crude oil prices of over 20% and natural gas prices of over 30% for the remainder of 2026, with upside risks to these projections. Consequently, Goldman has revised down growth forecasts for most Asian economies—lowering China's GDP growth projection by 0.1 percentage point to 4.7%, and reducing forecasts for other economies by 0.3–0.5 percentage points—while raising inflation expectations, anticipating CPI increases of 0.3–1.0 percentage points, partially cushioned by fiscal subsidies.
Despite the energy shock, China's export surplus continues to expand, averaging over $100 billion monthly in January and February, though growth rates may slow in March due to the Spring Festival. The renminbi faces appreciation pressure, which Beijing might allow to mitigate trade friction, while the retreat of deflationary spillovers from China is supported by rising PPIs and currency strength. Meanwhile, a global AI investment boom, with U.S. mega-caps spending over $660 billion this year and global capex exceeding $1 trillion, is driving growth in parts of Asia, particularly Taiwan and Korea, which host significant portions of the AI hardware supply chain. Defense spending is also accelerating, with China increasing its budget by 7% and Japan by over 9%.
Korea and Taiwan stand at the intersection of these forces: benefiting from robust tech exports (Taiwan's tech exports contributed 6.6 percentage points to 2025 GDP growth; Korea's, 0.6), but facing weakness in non-tech sectors