Middle East conflict to weigh on developing Asia-Pacific growth: ADB

The Asian Development Bank (ADB) on Thursday said the Middle East conflict is expected to lower growth in developing Asia and the Pacific by 0.3-1.3 percentage points over 2026-27, depending on how it unfolds, while raising inflation by 0.6-3.2 percentage points.

“The conflict affects economies in Asia and the Pacific through higher energy prices, supply chain and trade disruptions, and tighter financial conditions. Tourism and remittances could also be impacted,” said ADB.

The ongoing Gulf tensions have disrupted supply chains and production, and pushed up raw material costs. Separately, the Organisation for Economic Co-operation and Development (OECD) cut India’s FY27 growth forecast to 6.1% from 6.2% earlier. It kept the global growth estimate for 2026 unchanged at 2.9%, but lowered the 2027 forecast to 3% from 3.1%.


The ADB outlined three scenarios to estimate the potential impact of the conflict. Over 2026-27, regional growth could fall by 0.3 percentage points in a scenario where tensions last until the second quarter of 2026 and oil averages about $105 per barrel.

If tensions extend to Q3, growth may drop by 0.7 percentage points, with oil rising to $130 in Q2 and $120 in Q3. In a year-long scenario, growth could decline by 1.3 percentage points, with oil prices spiking above $155 and remaining elevated for longer.

“Prolonged energy disruptions could force economies in developing Asia and the Pacific to navigate a difficult trade-off between weaker growth and higher inflation,” said Albert Park, ADB chief economist.

“Governments should focus on containing market stress and protecting the most vulnerable, while adopting policies to improve longer-term resilience,” he added.

The report highlighted that policymakers should focus on stability and resilience by allowing price signals to function, providing targeted and temporary fiscal support, managing market volatility while monitoring inflation, and taking measures to reduce energy demand.