Energy shock amplifies economic divergence in Asia, with clearly different fiscal and monetary policy paths
AI summary card
Energy shock amplifies economic divergence in Asia, with clearly different fiscal and monetary policy paths
Nomura believes that although Asia is at the center of the energy crisis, China, Taiwan, Singapore, and Malaysia are relatively resilient, while Thailand and the Philippines face greater growth pressure and India and Indonesia face more pronounced fiscal risk.
- GDP growth momentum in Thailand and the Philippines is expected to be the weakest, while Taiwan, Singapore, Malaysia, and China are relatively more resilient.
- The Philippines, Singapore, Australia, and New Zealand are more likely to see inflation above expectations and second-round effects.
- Fiscal policy remains the first line of defense for most Asian economies, but deficit risk is elevated in India and Indonesia.
- On the strategy side, the report recommends focusing on long euro/Indian rupee, short US dollar/Chinese yuan, long New Zealand dollar/US dollar, and selected rates opportunities in Korea and Thailand.
Report interpretation
Overview
The report analyzes the impact of the energy crisis triggered by the US-Iran conflict on major Asian economies. As Asia is a large net energy-importing region, it faces both price shocks and physical supply risks; however, the degree of impact depends on energy dependence, energy mix, fiscal space, buffer mechanisms, and the initial inflation/demand backdrop.
Core views
Nomura's core view is that Asia should not be treated as a homogeneous block. Thailand and the Philippines are more vulnerable to worsening terms of trade, tourism, remittances, and limited fiscal space; China is less affected because of coal self-sufficiency and power-system resilience; Taiwan, Singapore, and Malaysia are relatively resilient. On policy, fiscal support is the more common first response, while Australia, the Philippines, New Zealand, and Malaysia are more likely to raise rates, and China and Thailand are more likely to keep policy unchanged or biased toward easing.
Analysis framework
The report combines energy trade, CPI energy and food weights, GDP growth deviations from trend, CPI deviations from target, fiscal space, central bank reaction functions, and FX reserve adequacy across 12 major Asian economies to assess growth, inflation, fiscal, and monetary policy risks under the energy shock, and maps those risks to FX and rates trade ideas.
Methodology notes
An energy shock transmits through fuel, raw materials, transport, electricity, corporate profits, consumer income, and financial conditions into growth and inflation.
The report looks beyond oil prices and emphasizes the production and demand effects of shortages in liquefied natural gas, coal, refined products, and key industrial inputs.
Energy conditions, energy mix, fiscal capacity, inventory or industrial buffers, and the initial inflation and demand backdrop together determine how severely each economy is hit.
Economies with coal self-sufficiency or a high share of renewable energy are more resilient, while economies with weaker fiscal space and heavier subsidy pressure are more exposed to fiscal risk.
Differences in growth, inflation, fiscal risk, and central bank reaction are mapped into currency and yield-curve opportunities.
The report accordingly proposes euro/Indian rupee, Singapore dollar/Indonesian rupiah, US dollar/Chinese yuan, New Zealand dollar/US dollar, and rate-related strategies in Thailand, Korea, and India.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Euro/Indian rupeeRecommended long
- Strengths
- India's fiscal risk, a widening current account deficit, reduced capital inflows, and potential upward pressure on dollar demand support the case for rupee weakness.
- Weaknesses
- If India's growth is better than expected or external pressure eases, upside in the trade may be limited.
- Comparison
- Compared with some other Asian currencies, the Indian rupee is more exposed to fiscal slippage and balance-of-payments pressure.
- Risks
- RBI intervention, a pullback in oil prices, and improved capital inflows.
- Singapore dollar/Indonesian rupiahRecommended long Singapore dollar, short Indonesian rupiah
- Strengths
- Indonesia faces fiscal risk, balance-of-payments pressure, deteriorating reserve adequacy, and foreign-exchange control risk.
- Weaknesses
- As a partial commodity-exporting economy, Indonesia may benefit from higher coal and liquefied natural gas prices.
- Comparison
- Singapore has a stronger fiscal buffer, while Indonesia faces more pronounced fiscal and FX pressure.
- Risks
- Bank Indonesia hiking rates to stabilize the currency, and improved commodity export receipts.
- US dollar/Chinese yuanRecommended short
- Strengths
- China is only mildly affected by the energy shock, with strong coal self-sufficiency and power-system resilience, while capital inflows and policy factors support the yuan.
- Weaknesses
- If substitute energy, food, metals, and semiconductors continue to rise broadly and persistently, the policy buffer may prove insufficient.
- Comparison
- Compared with economies that are more dependent on energy imports and have less fiscal space, China's macro shock is smaller.
- Risks
- US dollar strength, worsening global risk appetite, delayed easing in China, or weaker-than-expected growth.
- New Zealand dollar/US dollarRecommended long
- Strengths
- The RBNZ is relatively hawkish, and there is support from foreign bond-buying demand.
- Weaknesses
- The energy shock and a global growth slowdown could still weigh on risk currencies.
- Comparison
- Compared with economies facing more severe growth damage, New Zealand has stronger monetary policy support.
- Risks
- A rise in global risk aversion, softer commodity demand, and a shift in central bank stance.
- Thailand 5-year NDIRSBullish
- Strengths
- Thailand faces growth risks, the central bank is unlikely to hike, long-term rates are relatively high, and fiscal risk is relatively low.
- Weaknesses
- Weak tourism and the energy shock will still weigh on macro fundamentals.
- Comparison
- The report sees it as more attractive than US 5-year Treasuries.
- Risks
- Inflation above target, an unexpectedly hawkish central bank, and foreign outflows.
- Korea 5-year NDIRSBullish
- Strengths
- Korean inflation is manageable, there are capital inflows, and the rate hike cycle has already been substantial.
- Weaknesses
- Soft domestic demand and a K-shaped recovery may limit growth elasticity.
- Comparison
- Compared with high-inflation economies, Korea faces a more moderate rate-hike risk.
- Risks
- Unexpectedly high imported inflation and continued rises in global interest rates.
Key data
- Research scope12 major Asian economiesThe report compares growth, inflation, fiscal policy, and monetary policy risks.
- Negative-scenario oil price assumptionBrent crude at USD100/bbl in 2026Compared with the baseline scenario of USD88.3/bbl.
- India fiscal riskFY2027 deficit could be 0.6 percentage points of GDP above the 4.3% budget targetMainly due to cuts in consumption taxes and higher fuel and fertilizer subsidies.
- Indonesia fiscal riskThe 2026 deficit could be about 0.8 percentage points of GDP above the 2.7% budget targetAssuming Brent crude averages USD100/bbl.
- Philippines inflation forecast4.9% in 2026Above the central bank's 2%-4% target band.
- Australia inflation forecast4.8% in 2026Above the 2%-3% target band; the report expects the RBA may hike again.
- Singapore core inflation2.4% in Q4 2026, with a full-year average of 2.1%Energy, utilities, food, and a positive output gap push core inflation higher.
Impact & implications
The energy crisis will make Asian asset prices depend more on cross-country differences rather than on a single Asia risk premium. Currencies and rates in economies hit by weaker growth, higher fiscal risk, or reserve pressure are more vulnerable; economies with inflation above target and stronger demand are more likely to hike rates; China and Thailand are more likely to keep policy unchanged or biased toward easing because inflation pressure is lower and demand is softer.
Risks
- The US-Iran conflict lasts longer than expected and energy supply disruptions are more severe than expected.
- Brent oil remains above the baseline assumption, pushing up fiscal subsidies and inflation pressure.
- Fiscal deficits in India and Indonesia breach targets and trigger credit-rating pressure.
- Persistent weakness in the rupiah could force Bank Indonesia to hike rates.
- Second-round inflation effects spread further in Australia, the Philippines, and Singapore.
- Weaker tourism, remittances, and Middle East demand intensify growth pressure in some Asian economies.
What to watch
- Prices of Brent crude, liquefied natural gas, coal, and refined petroleum products.
- Execution of fuel subsidies and fiscal deficits in India, Indonesia, the Philippines, and Malaysia.
- The rate-hike paths of the RBA, the Philippines' central bank, the RBNZ, and Bank Negara Malaysia.
- Whether China and Thailand continue to maintain an easier stance or refrain from hiking rates.
- The rupiah's trajectory, FX reserve adequacy, and capital flows.
- Whether second-round effects appear in core inflation across Asian economies.