Key facts
- The Asian Development Bank (ADB) warns the Middle East conflict poses a stagflation risk to Asia.
- The ADB has downgraded its growth outlook and raised inflation projections for developing Asia and the Pacific.
- Regional growth is forecast at 4.7% in 2026, with inflation projected at 5.2% this year.
- A prolonged conflict could result in a 1.3 percentage point loss in growth over 2026-2027.
- The ADB recommends energy diversification, targeted fiscal support, and monitoring inflation expectations.
The Asian Development Bank (ADB) has significantly downgraded its economic growth outlook and raised inflation projections for developing Asia and the Pacific due to prolonged disruptions from the Middle East conflict. ADB President Masato Kanda described the crisis as a "formidable test" for the region's economic ascent, warning of stagflationary risks. In its latest outlook, the ADB forecasts regional growth to slow to 4.7% in 2026, down from previous projections, with inflation potentially accelerating to 5.2% this year. These revised figures assume continued hostilities and sustained pressure on oil and gas prices, with oil prices averaging around $96 per barrel in 2026. A more severe downside scenario, involving renewed conflict escalation, could see growth fall to 4.2% and inflation reach 7.4% in 2026. The ADB noted that the conflict has caused systemic, long-lasting disruptions to global energy and trade networks. If hostilities persist through the third quarter, regional growth could be cut by 1.3 percentage points over 2026 and 2027. The bank advises policy priorities to focus on containing inflation and financial stress, while accelerating energy diversification and efficiency to mitigate future vulnerabilities. Targeted fiscal support for vulnerable households and industries is also recommended, rather than broad subsidies.