AI Boom Propping Up APAC Growth But Geopolitics, Trade Shocks Headwinds: Moody's Analytics

The artificial intelligence boom has helped the Asia-Pacific region dodge a sharper slowdown, but headwinds to growth are mounting as geopolitical and trade shocks keep prices high, Moody's Analytics said on Tuesday.

It projected growth across the Asia-Pacific region to slow to 4.2% in 2026 and 3.6% in 2027. This is down from 4.3% in 2025.

Geopolitical upheaval and trade disruptions — including the conflict in the Middle East and friction between the US and its trading partners — have driven up prices and the cost of doing business, dragging down consumer and business spending across much of the region.

"For now, the AI boom is still propping up export growth, but it is looking increasingly ripe for a pause," Moody's Analytics said in its Asia-Pacific Outlook report.

The AI boom is currently papering over the strain from higher inflation and tight policy, it said, adding the Middle East conflict is a top concern posing downside risks to growth.

A fresh flare-up in the Middle East or a drawn-out blockade of the Strait of Hormuz would send oil prices surging and force countries to drain their reserves. That would lift inflation, hurt growth, and worsen the trade-offs facing central banks, Moody's Analytics said.

"A prolonged conflict in the Middle East, a sudden bursting of the AI boom, fresh trade friction, or a financial market correction alongside a global downturn would leave the region badly exposed," it said.