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The Asian Development Bank (ADB) says the Middle East conflict is contributing to systemic, protracted disruptions across the Asia-Pacific region, prompting a downgrade to growth forecasts and an upward revision to inflation projections.
ADB projects regional economic growth at 4.7% in 2026 and 4.8% in 2027, revised down from 5.1% for both years that had been foreseen earlier in April. Alongside slower growth, ADB expects inflation pressures to intensify.
In its latest forecast, regional inflation is expected to rise to 5.2% this year, up from 3% last year, before easing to 4.1% in 2027.
ADB President Masato Kanda described the changes as a meaningful adjustment reflecting a deeper crisis backdrop. He said global trade and energy networks are experiencing systemic and persistent disruptions, requiring more urgent countermeasures.
One direct driver of the less favorable outlook is sharp energy-market volatility. ADB’s baseline assumption is that oil averages $96 per barrel in 2026, compared with $69 per barrel at the start of the year prior to the Middle East conflict.
ADB said it does not rule out a worse scenario. If the conflict escalates and oil spikes in May 2026, growth for developing Asia-Pacific could fall to 4.2% in 2026 and 4.0% in 2027. In that case, inflation could rise to as high as 7.4% in 2026.
ADB added that economies dependent on fuel imports, tourism, and remittances would face the largest impact.
To help member nations manage the headwind, ADB outlined four strategic policy responses.
ADB recommends that governments avoid suppressing market signals through broad price controls or universal subsidies, which it says can waste resources and distort incentives. Instead, it argues for allowing energy prices to reflect market realities, at least partially, to reduce fiscal pressures and encourage households and businesses to conserve energy, shift to alternative fuels, and invest in renewable energy.
ADB also calls for targeted and time-bound regulation, with fiscal support focused on the most vulnerable and on key industries directly affected by higher input costs. It said such measures can cushion shocks while preserving incentives for the economy to adjust without undermining financial stability.
On monetary policy, ADB said central banks should act as an anchor for stability, providing targeted liquidity to maintain financial-system functioning and closely monitoring inflation expectations. It warned against over-tightening, which could hamper growth and contribute to volatile financial conditions, and said robust communications would be important to anchor market expectations.
Finally, ADB urged governments to implement energy-demand management through concrete daily actions, including cooling-temperature rules, reducing nonessential lighting, and organizing energy-saving campaigns during peak hours. It also cited flexible measures such as remote work, adjusted shift patterns, and promoting public transport and car-free days on holidays to reduce fuel demand and support a more sustainable consumption model over the long term.
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