Emerging economies: Why is the energy shock not derailing growth driven by the AI boom?
Despite the war in Iran, the closure of the Strait of Hormuz and the temporary surge in energy prices, emerging economies have so far avoided a crisis scenario. Their growth is slowing marginally, inflation remains contained in most countries and financial markets have not collapsed. The most powerful growth engine is coming from Asia: global demand for chips, data centers and electronic goods linked to artificial intelligence is offsetting part of the oil shock and reshaping the external balances of several emerging countries.
Emerging economies have so far withstood the energy shock caused by the conflict in the Middle East better than expected. The surge in oil, gas and energy-related input prices was rapid, but less inflationary than in 2022. If monetary easing cycles have been interrupted in many countries, most central banks have been able to keep their rates unchanged over the past four months. Emerging financial markets did not experience a generalized loss of confidence, while macroeconomic buffers stronger than in summer 2022 helped absorb the rise in energy costs. In Asia, the region most dependent on Middle Eastern hydrocarbons, authorities have limited the risks of shortages by diversifying supply sources, mobilizing reserves and adjusting demand. Most importantly, countries exporting technological goods have been benefiting strongly from the boom in artificial intelligence. Investments in AI physical infrastructure and global demand for chips and other electronic goods have been supporting growth and external accounts of several emerging economies, sometimes more than the energy shock penalizes them. In the short term, the average growth of emerging markets should therefore only slow down moderately. Risks remain high, however, including more persistent inflation, possible increases in US Fed rates, geopolitical tensions, volatility in commodity prices and the risk of a tech cycle correction.
Author
BNP Paribas Team
BNP Paribas
BNP Paribas Economic Research Department is a worldwide function, part of Corporate and Investment Banking, at the service of both the Bank and its customers.
