AI boom helping to offset drag from higher energy prices

Asia’s heavy reliance on imported energy – particularly shipments passing through the Strait of Hormuz – leaves the region more exposed than most to higher global energy prices. But, for now, the drag from energy costs is being offset in several economies by a surge in electronics exports linked to the global AI boom. Inflation has risen sharply in some countries as higher energy prices feed through. However, price controls and subsidies are keeping price pressures under control in most of the region. With the crisis in the Middle East ongoing, we expect most central banks to hike policy rates this year. The key exceptions are Malaysia, Taiwan, and Thailand.