AI boom supporting APAC growth amid mounting trade and geopolitical headwinds, says Moody's Analytics

The artificial intelligence boom has helped the Asia-Pacific region avoid a sharper economic slowdown, but growing headwinds from geopolitics and trade shocks are keeping prices high, according to a report released on Tuesday by Moody's Analytics.

Moody's Analytics projected that growth across the Asia-Pacific region will slow to 4.3 per cent in 2025, before declining further to 4.2 per cent in 2026 and 3.6 per cent in 2027.

Geopolitical upheaval and trade disruptions, which include conflicts in West Asia and friction between the United States and its trading partners, have driven up prices and the cost of doing business. These factors have subsequently dragged 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 stated in its Asia-Pacific Outlook report.

The report noted that the current AI boom is effectively papering over strain caused by higher inflation and tight monetary policy. It further highlighted that the West Asia conflict remains a top concern that poses significant downside risks to regional growth.

According to Moody's Analytics, a fresh flare-up in West Asia or a drawn-out blockade of the Strait of Hormuz could send oil prices surging, forcing countries to drain their reserves. Such a scenario would lift inflation, hurt growth, and worsen the trade-offs faced by central banks.

The report cautioned that a prolonged conflict in West Asia, 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.

"The findings from Moody's Analytics highlight a critical reality for businesses and startups operating in the broader Asia-Pacific ecosystem. While the artificial intelligence sector is currently serving as a vital engine for export growth, founders and investors must remain cautious. Relying heavily on a single sector while ignoring macroeconomic headwinds like inflation, tight monetary policies, and geopolitical risks can leave companies vulnerable. Entrepreneurs need to build resilient business models that can withstand potential market corrections and supply chain disruptions." — Dr. Shishir Gupta, Founder & CEO, StartupLanes