AI and energy pull in opposite directions in Asia Pacific
The Middle East conflict is affecting global energy prices and Asia’s industrial production, with challenges for exports and opportunities in high-tech sectors.
The ongoing conflict in the Middle East is impacting global energy prices and, consequently, the industrial production landscape in Asia Pacific. Despite a stronger-than-expected Q1, challenges lie ahead.
Our revised forecast for industrial production growth in the region has increased to 4.9% for 2026, up from 4.3% in April. However, supply disruptions stemming from the US/Israel war with Iran are anticipated to slow growth for the remainder of the year. While advanced manufacturing is expected to thrive due to government support, rising energy costs and softer external demand pose significant risks to China's export-driven sectors.
The Asian manufacturing sector's reliance on Gulf hydrocarbons makes it particularly vulnerable to supply disruptions, affecting competitiveness compared to Europe and the US. Higher global energy prices are likely to diminish consumers' purchasing power, especially impacting durable goods such as automotive.
Conversely, the high-tech electronics sector remains robust, driven by strong AI demand and substantial capital expenditure from US hyperscalers. This trend is expected to bolster semiconductor production in Taiwan and South Korea, positively influencing the wider regional supply chain. Download the report for more detailed insights.
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