Commerzbank’s Charlie Lay, Dr. Henry Hao and Moses Lim argue that the war in Iran has delivered a stagflationary shock to Asia, pushing inflation forecasts higher while leaving growth risks skewed to the downside. They see Brent averaging around USD110 before easing to USD80, expect most Asian central banks to stay on hold, and note Asian currencies have weakened versus the Dollar.
War-driven stagflation and FX pressure
“The war in Iran has delivered a stagflationary shock to Asia, the region most exposed to the Strait of Hormuz closure. The inflation forecasts are revised up across the board while growth risks are skewed to the downside, most acutely for the Philippines and Thailand. The AI-investment boom is partly cushioning the blow for the major electronics exporters, though the sector also has direct Gulf exposure via helium and specialty gases.”
“Most Asian central banks are likely to stay on hold, caught between spiking inflation and fragile growth. The exceptions are Singapore and the Philippines which have already tightened policy. Asian currencies, down around 2.2% against the USD since end-February, are absorbing the shock for now, but depreciation pressure remains.”
“For Asian GDP growth, most forecasts are unchanged for now but the risks are tilted to the downside, particularly if the war drags on and oil prices remain elevated. Our base case is that Brent oil prices will average around USD110 to May and settle around USD80 in H2 2026. We kept China’s growth forecast unchanged at 4.0% as it was already below the market consensus.”
“Our base case assumes the conflict de-escalates by end-May and passage through the Strait of Hormuz normalizes progressively in H2. Brent oil is forecast to settle around USD80 in H2. Under this scenario, central banks can treat the inflation spike as transitory. A prolonged closure materially changes the calculus.”
“The oil shock has led to a broad upward revision in the inflation forecasts for Asian economies. The hit to growth varies across Asia, with the Philippines and Thailand the most vulnerable. The electronics exporters are better placed to absorb the shock, underpinned by the AI-investment cycle.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Source: https://www.fxstreet.com/news/asian-fx-oil-shock-and-ai-cushion-commerzbank-202604272342
