Morgan Stanley has released a research report noting that investors have recently focused on the potential downside risks to Asia's macro outlook from the artificial intelligence capital expenditure cycle, elevated interest rates, and rising oil prices. The firm believes these headwinds have so far only posed a mild drag on Asia's economic growth and have not caused a major impact.
The firm points out that Asia's capital expenditure supercycle is not driven by AI alone, as AI and AI-related energy and industrial capital expenditure account for only about 20% of the increase in Asia's capital expenditure. In addition, corporate balance sheets remain healthy, with debt-to-GDP ratios still below pre-pandemic levels, helping to buffer the impact of rising interest rates; the current increase in oil prices remains within a manageable range, and higher export prices, along with sufficient local refining capacity in 83% of the region's economies, can provide offsetting effects.
The firm believes that if oil prices remain above US$120 per barrel, central banks raise rates procyclically, and AI capital expenditure in 2027 falls back from 2026 levels, this could pose significant downside risks to the region's economic growth. By comparison, South Korea, Taiwan region, Japan, mainland China, and Malaysia are more vulnerable to the AI capital expenditure cycle; India, Indonesia, and the Philippines are more vulnerable to high interest rates and high oil prices.
Comments