While an unexpected surge in artificial intelligence-driven demand for semiconductors has bolstered exports in nations like South Korea, this tailwind may not suffice if geopolitical instability persists. The IMF estimates that a prolonged energy crisis, characterized by oil prices remaining above $100 per barrel, could shave two percentage points off regional growth. Such a scenario threatens to trigger a broader economic contraction, leaving governments with limited capacity to subsidize fuel or implement tax relief.

Srinivasan highlighted that the region’s domestic demand remains sluggish, creating an overreliance on external trade. As global interest rates stay elevated, the fiscal room for maneuver is narrowing significantly. Authorities are now urged to prioritize debt management and fiscal discipline to maintain market confidence. With potential climate-related disruptions like El Niño looming, the IMF maintains that while risks have balanced since April, the outlook remains heavily tilted toward the downside.