By Stephanie Yang, CNN
Taipei, Taiwan (CNN) — In South Korea, a global energy supply crunch has hit hard. Officials have advised energy conservation, cut growth forecasts and warned of fallout from high inflation and 17-year lows in the value of its currency. Yet the nation’s largest companies are raking in record profits, and its stock market is hitting all-time highs.
The contradiction underscores how, in Asia, there are now two economic realities.
The historic oil shock caused by the war in Iran is accelerating a divergence of economic fortunes across the region. One is driven by tech giants and the promises of artificial intelligence. The other is darkened by fuel scarcity and rising prices that threaten a humanitarian crisis.
As the disproportionate impact of oil shortages in Asia widens the divide, economists warn that the phenomenon has significant ramifications for monetary policy, political stability, and future economic growth across the continent – and other parts of the world that rely on it for trade.
“Yes, the economy is booming, the equity market is doing very well, but we see limited wealth effect spilling over to the daily activities happening in the region,” said Benson Wu, a Korea and China economist at Bank of America Merrill Lynch. “I think that is something really troubling many observers.”
The disparity is indicative of growing inequality, exacerbated first by the Covid-19 pandemic, and now the conflict in the Middle East. Shipping via the Strait of Hormuz, through which one-fifth of the world’s crude oil normally flows, has dried up over the past two months, sending oil prices to four-year highs.
Asia, which is heavily reliant on the Middle East for energy, has borne the initial brunt of those higher prices. But the impact isn’t spread evenly. Advanced, tech-heavy economies in East Asia like Japan, South Korea and Taiwan have bigger fuel reserves to draw on, as well as the cash to pay higher prices to secure more stocks.
Meanwhile, nations like India, the Philippines and Thailand, whose growth is dominated by traditional manufacturing and services, are facing greater struggles to secure fuel and offset slowing economic activity.
“These are regions that, number one, they are not sharing that much of the good things coming from the current AI or tech story. And number two, they are potentially experiencing more shock from the inflationary pressures coming from the Middle East conflict,” said Wu. “That is something we need to watch very closely.”
Widening divide
Semiconductors were already powering everything from smartphones to cars to home appliances, earning the industry a reputation as “the new oil.” Now the AI boom is turbocharging demand.
A UN Trade and Development report projected that the global AI market will grow to $4.8 trillion by 2033 — a 25-fold increase from 2023. Morgan Stanley estimated that spending on AI infrastructure could exceed $3 trillion in the next two years.
The economic effects are most apparent in the chipmaking capitals of the world.
Taiwan’s first-quarter GDP growth notched a 39-year high of 13.69%, as its equity market overtook Canada’s to become the world’s sixth-largest. The gains are largely attributable to the chip-making behemoth Taiwan Semiconductor Manufacturing Company (TSMC), which accounts for more than 40% of the Taiwan Stock Exchange