Geoeconomic shocks reshape Asia's economy, Ghaffour warns

The global economy faces a sequence of severe shocks, including the COVID-19 pandemic, the war in Ukraine, sweeping tariff measures, and the ongoing Middle East conflict.

The International Energy Agency describes the current episode as the largest oil supply disruption and energy security threat in history.

These developments signal a fundamental shift to a 'new normal' characterised by frequent, overlapping, and mutually reinforcing shocks.

Many economies have yet to fully rebuild policy buffers, leading to considerably narrowed policy space and acute trade-offs.

The Middle East conflict directly impacts Asia, which sources a sizeable amount of its oil and gas from the region.

Transmission channels extend beyond energy, affecting industrial inputs like helium and specialised gases for critical sectors such as healthcare and technology, alongside fertiliser shortages impacting food security.

These disruptions are raising cost pressures across the economy, with higher energy prices and input shortages feeding into production and logistics, adding to broader inflationary pressures.

Uncertainty over the conflict's duration weighs heavily on the growth outlook; IMF and AMRO scenarios suggest a prolonged conflict could push global GDP growth near the 2% threshold.

Malaysia's economy, however, demonstrated resilience with 5.3 percent growth in the first quarter, projecting 4 to 5 percent for the year, and inflation expected within 1.5 to 2.5 percent.

Firms and governments are recalibrating supply chains through alternative sourcing, oil substitutes like coal, and export restrictions.

While necessary, these responses carry long-term costs, compounding existing vulnerabilities.