ADB: Middle East conflict a severe test for Asia's economies

The Asian Development Bank (ADB) warned on April 10 that growth in Asia-Pacific member economies is likely to slow this year as the Middle East conflict disrupts global energy markets and trade.

ADB President Masato Kanda said the crisis is a “severe test” for the region’s economic ascent, creating new uncertainties in an already fragile global outlook.

ADB outlook: growth and inflation scenarios

In its latest Asian Development Outlook, the ADB built forecast scenarios based on how long the conflict lasts.

In the baseline scenario—where oil prices gradually stabilize and return to pre-conflict levels by the end of the year—regional growth is projected to slow from 5.4% in 2025 to 5.1% in 2026.

If military actions extend to the end of Q3 2026, growth could fall to as low as 4.7%.

The ADB also estimated that if the war lasts a year, regional growth could lose about 1.3 percentage points in 2026-2027. Alongside weaker growth, inflation pressures are expected to rise sharply.

Inflation in Asia-Pacific member economies is projected to jump to 5.6% if the conflict persists, up from 3.0% in 2025. Even under the most optimistic scenario, inflation is forecast to be around 3.6%.

Ceasefire caution and market uncertainty

Albert Park, the ADB’s chief economist, cautioned about a recently reached two-week ceasefire between the US and Iran. He said the ceasefire is fragile and that markets do not expect it to last long enough to meaningfully improve the region’s growth outlook.

Spillovers to key industries

The ADB said the conflict’s effects would spill over into several industries across the region.

• Agriculture: Production costs and food prices are expected to rise due to the region’s reliance on fertilizers such as urea and ammonia sourced from the Middle East.
• High-tech: Semiconductor output could be constrained by disruptions to inputs needed for chip manufacturing, including helium, sulfur, and petrochemical products.
• Tourism: Travel is expected to be negatively affected as risk concerns disrupt travel worldwide.

Country notes

The report also included country-specific guidance for leading economies.

• China: Growth is forecast to slow from 5.0% in 2025 to 4.6% in 2026, as domestic consumption remains weak.
• India: Growth in 2026 is projected at 6.9%, down from 7.6% in 2025 due to external headwinds.
• Developed economies in the region: Overall growth is forecast to slow from 2.5% in 2025 to 2.2% in 2026, reflecting softer momentum in Hong Kong (China), Japan, and Singapore.
• Southeast Asia: Growth is expected to ease from 4.8% in 2025 to 4.7% in 2026.

Policy recommendations

Given current conditions, the ADB advised countries against tightening monetary policy too aggressively or imposing price controls.

Instead, it recommended targeted, time-limited fiscal measures to support economic activity. The ADB also urged countries to accelerate energy diversification and improve electricity efficiency to reduce vulnerability to future geopolitical shocks.