Aside from a few countries such as South Korea and Vietnam, Srinivasan says most lack the fiscal space to fund generous support programmes for their people. “The point we are making is to the extent possible, provide targeted support,” he adds. “Where fiscal space is truly limited, make the support budget neutral. In other words, cut elsewhere to support people who are being hit by an energy shock. This is not the time to be adventurous on fiscal frameworks and so on.”
Still, Srinivasan believes countries should not halt structural reform efforts because of today’s crisis. If anything, the pace of reform must quicken, not slow, if they are to emerge from these shocks stronger.
“We have had multiple crises over the last few years,” Srinivasan says. “That doesn’t mean that structural reforms should stop. Continue with prudent macro management and at the same time, embark on structural reforms, which will provide for strong and job-rich growth going forward.”
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The IMF has outlined three scenarios for how the oil crisis could unfold. In the reference case, the shock is temporary, with prices rising before easing back. The adverse scenario sees higher prices that eventually normalise by 2027. The severe case assumes prices remain elevated for longer, stretching into 2027 and beyond.
“The severe scenario assumes that prices remain higher for longer because there is damage to infrastructure, which is much harder to rebuild,” Srinivasan says, noting that the world is in for a more “prolonged scenario” if the disruptions continue for the next three months or more.
The uncertainty over when exactly the oil shock will end means countries need to be judicious with how they deploy their fiscal resources. Srinivasan recommends that countries avoid hefty interventions, as rising prices will help to cap oil consumption naturally.
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“This may not be the last shock you see. Your buffers are already eroding, and so you want to keep that, keep that [and] keep some powder dry.”
China’s still resilient, for now
China has so far emerged as a relative bright spot, as it is not heavily dependent on the Middle East for its energy needs. It also benefits from a diversified energy mix that includes coal, hydropower, solar, wind and nuclear power.
“China is one country which has a lot of physical reserves of energy. In some sense, compared to other countries, it’s in a relatively sweet spot because it has buffers, it has fiscal policy space,” says Srinivasan.
“Of course, the question is, if this conflict goes beyond the number of months of coverage they have of physical buffers, then it’s a different ballgame. They will also be affected. But as of this point in time, they are well placed to tide over current prices.”
On March 5, China announced that it was lowering its GDP growth target to 4.5% to 5%, down from 5% in 2025. This is the first time China has downgraded its economic growth target since 2023. It is also the lowest growth target set by China since 1991. Srinivasan says the revised goal is a “reasonable target” for China.
“China’s economy has been slowing down over the years, and it reflects many structural factors, including an ageing population, falling productivity and so on,” he says, adding that giving the target as a range is preferred since it provides more flexibility as opposed to a point forecast.
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“4.5% to 5% is a reasonable target. We have lowered our forecast for China for this year to 4.4%. The first quarter GDP numbers that came out in China were stronger than what we expected and what the markets had expected. This is clearly an upside risk to our growth forecast for China.”
Srinivasan’s colleague, Thomas Helbling, IMF deputy director for Asia-Pacific, says he is more concerned about the slump in domestic demand and weakness in China. “We have asked for more forceful policy efforts to boost domestic consumption, both through more fiscal stimulus aimed at consumers, structural fiscal measures, strengthening the social safety net, and at the same time, move away from unwarranted investment support and industrial policy.”
AI will widen global gaps
It has been over three years since OpenAI’s ChatGPT sparked the global AI boom, and policymakers are still racing to manage its disruption to jobs. On May 1, Prime Minister Lawrence Wong warned of AI’s risks in his May Day Rally speech.
“Of course, AI is far more powerful than spreadsheets. So, the impact on our workplaces will be much greater,” said Wong. “And that is why I cannot promise that there will be no disruption. Jobs will change. Some will disappear.”
While AI is set to transform industries, Srinivasan says its impact will be uneven across nations. In Asia, a country’s experience with AI will depend on its level of preparedness. Singapore may top the IMF’s AI preparedness index, but its neighbours lag far behind.
“To use AI effectively, you need to be well-prepared, in terms of digitalisation, the skills and so on,” he adds. “What we think is that in Asia, there’s a lot of heterogeneity. Some countries are better prepared to deal with the shock, to deal with the structural transformation coming from AI, others less so.”
Srinivasan warns this could widen the gap between countries depending on how they adopt and integrate AI into their economies. At a more granular level, it could also deepen the divide between workers who use AI and those who do not.
“If you look at the skill requirement for AI in advanced countries, one in 10 jobs requires a new skill. In emerging economies, it’s one in 20,” adds Srinivasan.
“Those workers who can leverage AI-related skills will do very well. That’s a small share, but those people will become so rich that their demand for services will go up. So, those workers in the services sector will benefit, but the middle will hollow out.”
Youth employment
It is still unclear whether AI will be a net job creator or destroyer. However, the labour market is already softening, with youth unemployment edging up across the region — a trend that could be worsened by AI. In China, the urban youth unemployment rate for those aged 16 to 24 rose from 16.1% in February to 16.9% in March. In Singapore, the Ministry of Education’s latest graduate employment survey shows a slide in full-time roles. Just 74.4% of graduates secured full-time jobs in 2025, down from 79.4% in 2024.
“Even though Asia has been the powerhouse when it comes to growth, we have seen that in many countries, youth unemployment has been rising. The other disturbing factor, which we found, is that it’s not just youth unemployment, but also unemployment levels for educated youth have also gone up,” notes Srinivasan.\
Some may be quick to blame AI, but he argues it is a catalyst rather than the root cause of rising youth unemployment. “There is a disconnect between what schools are producing as graduates and the kind of jobs that are out there,” Srinivasan says, adding that AI is merely introducing another layer to the problem by eliminating entry-level jobs in certain sectors.
Rather than framing this as an AI problem, countries should rethink their education systems and align them more closely with the needs of today’s businesses. Srinivasan adds: “The big thing for many countries is to embark on structural reforms, looking at the education system in a very holistic way, and to see whether what they are producing in terms of students and the skills meets what the companies need.”
