Asia-Pacific’s (APAC) relative insulation from the Middle East conflict has singled out the Philippines and Indonesia as laggards as external headwinds are exacerbated by domestic turmoil, according to Allianz Research.

Allianz Research said in its half-time outlook report published last week that despite emerging as one of the regions most exposed to the United States (US)-Iran conflict, APAC is still seen as relatively resilient, with average growth of 4.3 percent this year.

This resilience is attributed to the artificial intelligence (AI) boom, which is “doing the heavy lifting that geopolitics and fiscal policy cannot.”

“However, gains are far from evenly shared, with a group of winners emerging, including countries such as Taiwan, Singapore and South Korea, while countries such as the Philippines and Indonesia lag as domestic turmoil compounds exposure to the conflict,” Allianz said.

Apart from the technology surge, the report also pointed to Asia’s role as a global engine of commerce. “In 2026, 80 percent of global trade volume growth in goods and services is driven by Asia and the US,” the report said.

However, this dominance faces fresh challenges from shifting American trade policies. Allianz warned that the shift in US policies “is expected to negatively affect Asian countries in particular,” as the US effective tariff rate is projected to rise from eight percent to 13 percent.

According to Allianz, the region’s resilience hinges on the booming technology sector. It said the AI boom, which has been driving nearly two-thirds of Asia’s export growth, is helping “cushion” the global economy from the impact of the Middle East crisis.

This AI boom is broadening Asia’s recovery beyond traditional manufacturing, with major semiconductor firms in Taiwan and South Korea leading regional market gains.

By contrast, the Philippines and Indonesia are struggling with the lingering consequences of energy shocks.

“Despite recent developments toward normalization in the Gulf, we expect inflation to remain elevated in the near term as second-round effects from elevated fuel, energy and fertilizer prices keep weighing on the region,” Allianz said.

Headline inflation decelerated to 6.4 percent in June from 6.8 percent in May and a peak of 7.2 percent in April. However, this respite may prove temporary as underlying price pressures remain elevated.

Core inflation, which strips out volatile items from the consumer basket, jumped to 4.4 percent in June from 4.1 percent the previous month—twice the 2.2 percent recorded in June 2025.

This persistent price pressure has kept these countries on the defensive compared with their high-tech neighbors. The Bangko Sentral ng Pilipinas (BSP) has so far implemented a cumulative 50 basis points (bps) in interest rate hikes, bringing the benchmark rate to 4.75 percent, a tightening cycle that Allianz expects to end sooner.

“We now expect the Philippines and Indonesia, which started earliest, to conclude” their interest rate tightening cycles. Their regional peers, such as India and South Korea, still face potential rate hikes ahead.