Morgan Stanley: AI capital expenditure, interest rate, and oil price headwinds have a mild drag on Asia's macroeconomic outlook

Morgan Stanley released a research report stating that investors have recently focused on the potential downside risks to Asia's macroeconomic outlook from the AI capital expenditure cycle, elevated interest rates, and rising oil prices. The bank believes that these headwinds have so far only constituted a mild drag on Asia's economic growth and have not caused a major impact. The bank noted that Asia's capital expenditure super-cycle is not driven by AI alone; AI and AI-related energy and industrial capital expenditure account for only about 20% of Asia's capital expenditure increase. 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 rising export prices, as well as 83% of economies in the region having sufficient local refining capacity, can both provide offsets. The bank believes that if oil prices remain above US$120 per barrel, central banks raise interest rates procyclically, and AI capital expenditure in 2027 falls back from 2026 levels, this could pose significant downside risks to regional 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.