Moody’s Analytics has projected that economic growth across the Asia-Pacific (APAC) region will slow over the next two years as higher commodity prices, tighter policy measures, trade uncertainties and adverse weather conditions create fresh challenges for regional economies. 
The agency said the APAC economy has so far avoided the sharp slowdown that many had expected following the escalation of conflict in West Asia. It noted that the rapid expansion of artificial intelligence has supported strong export demand and investment activity, helping accelerate GDP growth across much of the region despite global uncertainties. 
However, Moody’s Analytics said the number of risks facing the region continues to increase. It stated that elevated global commodity prices, continued uncertainty over US tariffs and tighter monetary and fiscal policy settings are beginning to weigh on economic activity. 
According to its latest outlook, APAC economic growth is expected to moderate to 4.1 per cent in 2026 from 4.3 per cent in 2025. Growth is projected to slow further to 3.6 per cent in 2027 as the boost from artificial intelligence-led investment and exports gradually fades. 
The agency also highlighted that the conflict in West Asia remains a major source of uncertainty. It said the reopening of the Strait of Hormuz is likely to be a prolonged process with intermittent disruptions, keeping global energy markets on edge. 
It noted that during the past few weeks, the US and Iran had announced a ceasefire and signed a Memorandum of Understanding (MoU), which temporarily halted hostilities and allowed shipping activity through the Strait of Hormuz to improve. However, the ceasefire later collapsed as fighting resumed, resulting in a sharp decline in vessel movement through the strategic waterway. The conflict widened further after Houthi forces targeted Saudi oil tankers and energy infrastructure along the Red Sea. More recently, the US and Saudi Arabia also carried out joint strikes on Iran-backed militias in Iraq. 
These developments have kept commodity prices, particularly crude oil, highly volatile. Moody’s Analytics said oil prices had briefly eased following the Iran-US agreement but rose again after renewed attacks around the Strait of Hormuz. Prices of refined petroleum products and key industrial inputs such as ammonia, urea and sulphur also remain well above levels seen before the conflict. 
The agency added that higher energy costs have pushed inflation higher across several Asian economies over the past few months, creating fresh challenges for central banks. It observed that the policy discussion has shifted from when interest rate cuts could begin to how long borrowing costs may need to remain elevated if inflation persists. It further noted that an extended period of high oil prices could keep monetary policy restrictive across the region. 
Central banks in Indonesia, the Philippines, Singapore, Australia, New Zealand, Japan and South Korea have recently tightened policy rates, while several others have indicated that they are prepared to act if inflation remains higher than expected. 
Apart from geopolitical risks, Moody’s Analytics identified the developing El Niño weather pattern as another major concern for the region. It expects hotter and drier conditions to affect large parts of Asia during the second half of the year, which could reduce agricultural output, disrupt food supplies and increase food prices, especially if weather conditions become more severe than anticipated. 
The agency pointed out that the previous El Niño event, which lasted from late 2023 to early 2024, contributed to higher food inflation across several Asian economies. It warned that a repeat of such conditions could add further pressure on inflation and economic growth if governments are not adequately prepared. 
The outlook comes at a time when many Asia-Pacific economies are balancing inflation control with growth support. While strong technology-led investment has helped cushion external shocks, economists have increasingly cautioned that prolonged geopolitical tensions, supply chain disruptions and climate-related risks could continue to influence economic performance over the coming years. 
Source PTI