Asian Economies Face Economic Risks Amid AI Boom Bust
Asia’s powerhouse economies face heightened vulnerability in the event of a potential AI downturn, which could jeopardise their burgeoning export sectors and trigger significant market disruptions, according to a recent study. The region is “particularly exposed” because it’s at the center of global supply chains and “increasingly integrated into AI-related financial markets,” the Asean+3 Macroeconomic Research Office said in a report Monday that covers Southeast Asia plus China, Japan and South Korea. “A disorderly correction could therefore propagate through multiple channels,” from trade to capital flows and financing costs.
The global surge in artificial intelligence development has driven unprecedented export levels in numerous Asian economies, which manufacture the chips and other advanced technology products essential for data centers. However, there are increasing enquiries regarding the sustainability of the AI surge, as investors express concerns over elevated valuations for technology firms and the prevalence of circular transactions where these companies seem to be financing one another. The Asean+3 region constitutes two-thirds of the expansion in global AI-related trade, as reported by AMRO.
The group estimates that a slowdown in demand could reduce economic growth in 2027 by as much as 1.5 percentage points, currently projected at 4.1% – positioning it as the most significant risk factor. Others noted in the report included extended disruptions in the Strait of Hormuz – with a possible effect of 0.6 percentage points – and El Niño weather disturbances. Some of the region’s equity markets, such as South Korea’s, exhibit a significant concentration on AI, rendering them vulnerable in the event of a substantial repricing. Other markets such as Japan and Hong Kong have begun to align more closely with US AI and technology assets, indicating that shocks could be transmitted even in the absence of a domestic trigger, according to AMRO.
“A sharp correction in AI-related financial assets could spill over to the broader financial system through forced deleveraging and tighter credit conditions,” AMRO said. The group is closely examining a diverse array of indicators to evaluate the probability of an AI correction, encompassing company valuations, leverage, funding sources, and underlying demand. “There are some warning signals, but we would say that they are not grave yet,” its lead economist Runchana Pongsaparn said at a briefing on Monday.
