World Bank warns Asian economies' fiscal buffers strained by prolonged oil price shock

The World Bank’s recent East Asia & Pacific Economic Update warns that the region’s fiscal capacity to absorb the ongoing oil price shock is eroding. Governments have responded more forcefully than other regions, relying heavily on fuel subsidies after the US-Iran war pushed global oil prices up. Indonesia, Thailand and Vietnam have all lowered gasoline prices, draining their dollar war chests by 15%-40% so far.

While the bank still projects 4.5% growth this year, driven by strong investment and an AI-led export surge, it flags that a prolonged energy shock could undermine this resilience, especially if AI growth slows or El Niño hits. Higher energy costs are already dampening manufacturing and consumer demand, and further price hikes could exacerbate inflation and tighten financial conditions.