Asia's technology cycle continues to advance, but energy shocks are intensifying regional divergence

Overview

This issue of Global Data Watch: Asia focuses on Asia's macro divergence under the Middle East conflict and energy shock. The report argues that Asia as a whole has high dependence on crude oil, natural gas, and refined products linked to the Strait of Hormuz and is therefore sensitive to energy shocks; however, clear stratification is emerging within the region. Technology economies represented by Korea, Taiwan, Singapore, and Malaysia have stronger energy buffers and directly benefit from sustained AI demand, while economies such as Indonesia, the Philippines, Vietnam, and India are more exposed to energy shortages, inflation, and policy tightening.

Core views

The core view is that Asia's technology cycle has not been interrupted by the energy shock, and March production and export data remain strong. Taiwan industrial production, Korea GDP, and EMAX technology exports all show that AI-related demand is still supporting regional growth. By contrast, energy-vulnerable economies face higher inflation, insufficient fiscal buffers, and FX pressure, and may be forced to hike rates from a weaker growth position. China's economy remains resilient, with energy supply and domestic production cushioning part of the shock, but external demand, oil product transportation, and US-China trade negotiations remain sources of uncertainty. In Japan, downside growth risks have eased somewhat, but goods inflation, input costs, and wage pressures suggest the BoJ still needs to maintain a hawkish bias in its signaling.

Analysis framework

The report uses a regional macro data-tracking approach, classifying Asian economies into “haves” and “have-nots” based on energy buffers and the degree of benefit from the technology cycle, and combines industrial production, exports, GDP, PMI, CPI, central bank policy expectations, energy prices, and trade data to assess the growth-inflation balance.

Methodology notes

• macro_regional_segmentationhaves_vs_have_nots

  Classifying Asian economies by energy buffers and degree of benefit from AI technology demand

  The report classifies Korea, Taiwan, Singapore, and Malaysia as economies with relatively stronger technology and energy buffers, while Indonesia, the Philippines, Vietnam, and India are classified as economies more vulnerable to energy shocks, to explain divergence in growth, inflation, and policy paths.

• data_trackinghigh_frequency_macro_indicators

  High-frequency macro indicator tracking

  The report tracks industrial production, export orders, PMI, CPI, services PPI, wages, trade, and central bank rate expectations to assess whether energy shocks are feeding through to growth, inflation, and policy responses.

• policy_reaction_functioncentral_bank_divergence

  Divergence in Asian central bank policy

  The report compares the responses of central banks in Korea, the Philippines, Indonesia, Japan, and others under growth, inflation, FX, and energy shocks, emphasizing that some central banks hike due to strong growth while others may be forced to hike because of inflation and FX pressures.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Asian technology economies: Korea, Taiwan, Singapore, Malaysia

  Benefiting from AI demand and the technology export cycle

  Strengths

  Strong technology production and export momentum, relatively better energy buffers, with Korea and Taiwan data clearly beating expectations.

  Weaknesses

  Still exposed to risks from global transport, energy prices, and slowing external demand.

  Comparison

  Compared with energy-vulnerable economies such as Indonesia, the Philippines, Vietnam, and India, technology economies are more resilient.

  Risks

  Slowing AI demand, greater-than-expected energy shortages, declining export orders, or supply-chain disruptions.

• Energy-vulnerable Asian economies: Indonesia, Philippines, Vietnam, India

  More exposed to energy shocks, inflation, and policy tightening

  Strengths

  India's flash April PMI rebounded, and higher LNG imports in April versus March provide a short-term buffer.

  Weaknesses

  High energy dependence, limited fiscal space, and inflation and FX pressures are more likely to force central banks to hike.

  Comparison

  Compared with technology economies, growth resilience is weaker and policy tightening may come from a vulnerable starting point.

  Risks

  Further rises in energy prices, rating outlook downgrades, capital outflows, and payback after front-loaded demand.

• China macro and external demand chain

  Energy supply resilience supports the economy, but external demand and trade uncertainty are rising

  Strengths

  Growth in domestic crude oil, natural gas, coal, and power generation, with relatively mild pass-through of energy prices to CPI.

  Weaknesses

  Exports slowed more than expected, net trade's contribution to 1Q GDP declined, and rising flight cancellation rates show the shock is beginning to appear.

  Comparison

  Compared with other economies under heavier energy import pressure, China's domestic energy production provides more cushioning.

  Risks

  Uncertainty in US-China trade negotiations, reduced supply of oil products and critical goods, and slower external demand.

• Japan rates and yen

  Inflation pressures support subsequent hikes, but conflict uncertainty delays action

  Strengths

  Wage growth, manufacturing PMI, and core goods inflation all support further BoJ normalization.

  Weaknesses

  The Middle East conflict and rising oil prices are weighing on household and SME sentiment, with services demand weakening somewhat.

  Comparison

  Compared with other major central banks, BoJ policy remains highly accommodative, so the cost of waiting is high.

  Risks

  If the market believes the BoJ will struggle to act for a prolonged period, long-term yields may rise and the yen may weaken.

Key data

• Taiwan March industrial production+4.5% m/m saAbove expectations, with technology production remaining strong.
• Taiwan technology momentumabout 60% q/q saarThe report says the underlying annualized momentum in the technology sector remains very strong.
• EMAX technology exportsannualized growth above 100% in the three months through MarchExplains the backdrop for strong production in Taiwan and other technology economies.
• Korea 1Q GDP+6.9% q/q saarSignificantly above J.P. Morgan's above-consensus forecast of 5.0%, with net exports providing support.
• Korea 2026 GDP forecastraised from 2.2% to 3.0%Due to strong 1Q growth and technology tailwinds offsetting the war shock.
• Philippines policy rate action+25bpThe BSP hiked early, and the report expects three more hikes this year.
• Indonesia policy rate4.75%BI kept rates unchanged but maintained a hawkish stance, with upside risk of hikes in May and June rising.
• China 1Q imports+22.7%Imports rose sharply, while exports slowed by more than expected, reducing net trade's contribution to GDP.
• Japan April manufacturing PMI54.9Up 3.3 points from the previous reading, the highest since January 2022.
• Japan official core CPIMarch 1.8% oyaUp from 1.6% in February, mainly driven by accelerating core goods prices.
• Japan full-time employee fixed wagesabout 3.0% oya in FebruaryConstant-sample data suggest wage growth has strengthened further from the sub-2% range in 2025.

Impact & implications

From an investment perspective, Asia's technology chain remains a relative bright spot in regional growth, with AI demand supporting exports and production in economies such as Korea and Taiwan. At the same time, energy shocks will increase macro volatility through import costs, transport costs, inflation, and FX pressures, and push some central banks toward tighter policy. Japan's policy path depends more on inflation persistence and uncertainty related to the Strait of Hormuz; if the BoJ delays hikes but fails to provide hawkish guidance, it could trigger upward pressure on long-term rates and downward pressure on the yen. China shows relatively strong short-term resilience, but external demand, trade negotiations, and global oil product supply still determine the subsequent risks.

Risks

• Prolonged Middle East conflict or closure of the Strait of Hormuz further constraining energy supply.
• Oil prices and transport costs continue rising and feed through to goods prices and services PPI.
• Asian vulnerable economies are forced to hike rates because of inflation and FX pressures, suppressing growth.
• China's export demand is affected by oil product transportation disruptions and uncertainty in US-China trade negotiations.
• If AI-related demand slows, the growth support for technology economies such as Korea and Taiwan may weaken.
• If Japan's BoJ stays on hold but communication is not sufficiently hawkish, it may trigger yen depreciation and upward pressure on long-term rates.

What to watch

• Whether subsequent technology exports, industrial production, and semiconductor-related orders in Taiwan and Korea remain strong.
• Whether Korea's 2Q GDP will show the pullback expected by the report, and whether the full-year 3.0% growth forecast is sustainable.
• Whether the Philippines, Indonesia, and other Asian central banks continue shifting toward rate hikes.
• China's April Politburo meeting, the May Trump-Xi meeting, and progress in US-China trade negotiations.
• Japan's April BoJ meeting, Outlook Report, April Tokyo CPI, and March industrial production.
• Second-round pass-through from LNG imports, oil tanker transport, flight cancellation rates, and energy prices into Asian inflation.