ADB warns Asia growth to slow sharply if Middle East disruptions persist

ADB warns prolonged Middle East disruptions could significantly slow Asia growth and drive a sharp rise in inflation.Summary:ADB warns Asia-Pacific growth could slow sharply if Middle East disruptions persist

Growth seen at 4.7% in 2026 under prolonged disruption vs ~5.1% baseline

Region could lose 1.3pp of growth over 2026–27 if conflict drags on

Inflation projected to surge to 5.6% under worst-case scenario

Fragile ceasefire and Hormuz risks remain key uncertainty

Energy shock seen as major threat to region’s economic trajectory

Policy focus: inflation control, financial stability, energy diversification
Developing Asia and the Pacific faces a meaningful slowdown in growth alongside a renewed inflation surge if disruptions linked to the Middle East conflict persist, according to the Asian Development Bank.In its latest outlook, the ADB warns that the region’s economic trajectory is increasingly tied to the duration and severity of energy supply disruptions. Under a scenario where instability continues through the third quarter, growth across the region is projected to slow to around 4.7% in 2026, down from 5.4% previously, while inflation could accelerate sharply to 5.6%.The risks extend beyond a single year. If the conflict drags on for a full 12 months, the ADB estimates the region could lose approximately 1.3 percentage points of growth across 2026 and 2027 combined. This would mark a significant setback for a region that has been a key engine of global economic expansion.The warning comes against a backdrop of a fragile ceasefire and ongoing uncertainty around energy flows, particularly through the Strait of Hormuz. The waterway typically handles around one-fifth of global oil trade, and any sustained disruption has already driven sharp increases in oil and gas prices, feeding directly into regional inflation pressures.The ADB emphasised that the current environment represents a major test for Asia’s growth model, which remains highly sensitive to imported energy costs and global trade conditions. While a shorter disruption would result in only a modest slowdown—with growth closer to 5.1% and inflation more contained—the probability of a prolonged shock appears to be rising.Officials highlighted that markets themselves are signalling scepticism about the durability of the ceasefire, adding to the difficulty of forecasting the outlook. The persistence of elevated energy prices and supply uncertainty is already tightening financial conditions and weighing on business and consumer confidence.In response, policymakers are being urged to prioritise inflation containment and financial stability in the near term, while accelerating longer-term efforts to diversify energy sources and improve efficiency. The broader message is clear: Asia’s growth outlook remains resilient, but increasingly vulnerable to external shocks, with the Middle East conflict now a central risk factor.
This article was written by Eamonn Sheridan at investinglive.com.

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