Moody's analytics: Moody's Analytics expects growth across the Asia-Pacific region to moderate to 4.2 per cent this year from 4.3 per cent in 2025, before slowing further to 3.6 per cent next year, as higher prices and tighter policy weigh on demand.

According to BERNAMA News Agency, the Asia-Pacific economy is currently running at two different speeds. The artificial intelligence (AI) boom has played a significant role in helping the region avoid a sharper economic slowdown. However, various headwinds to growth are increasingly evident. This AI surge is propelling the region's export sector, with strong demand for semiconductors and other technology products boosting shipments from Taiwan, South Korea, China, and parts of Southeast Asia, counterbalancing weaknesses in other areas.

The report highlights that in the first half of this year, nominal goods exports from South Korea and Taiwan exceeded those from Japan for the first time. Meanwhile, geopolitical and trade shocks have continued to elevate prices. The ongoing conflict in West Asia, the closure of the Strait of Hormuz, and new United States import tariffs have all contributed to this situation.

Moody's Analytics also notes that central banks in the region are tightening monetary policy only modestly, though there is potential for further tightening if the conflict persists and oil prices remain elevated. Higher inflation has strengthened the case for tighter monetary policy, particularly in areas where the AI boom has spurred robust growth and inflated asset prices. However, the trade-offs facing central banks are challenging. While higher interest rates can reduce inflation by curbing demand-a strategy that proved effective when post-pandemic demand was high-it is less effective now with demand already weak and interest rates still elevated across much of the region. Consequently, central banks have only modestly tightened policy this year.

Despite these challenges, Moody's Analytics believes the conflict in West Asia will eventually subside, and the inflation spike should be temporary.