ADB cuts developing Asia growth forecast as Middle East conflict weighs on economies

The Asian Development Bank (ADB) lowered its growth forecast for developing Asia and the Pacific to 4.9% for 2026 from 5.5% in 2025, a downward revision of 0.2 percentage points from its April projections.

Prolonged disruptions to energy markets caused by the Middle East conflict have weighed more heavily on the region's economic prospects than previously anticipated, according to the ADB's latest Asian Development Outlook released on Wednesday.

The lender maintained its 2027 growth forecast at 5.1%, expecting economic activity to recover as those pressures gradually ease.

The Asian Development Outlook July 2026 said disruptions to global energy markets are expected to unwind only gradually despite a framework agreement signed in June. The report said the conflict's impact has extended beyond energy to fertilizer prices, other commodities, and supply chains, keeping inflationary pressures elevated.

Regional inflation is now forecast at 4.3% in 2026, up from 3% in 2025 and 0.7 percentage points higher than the April projection. The inflation forecast for 2027 remains unchanged at 3.4%.

"Durable implementation of the framework agreement would help normalize global energy markets, but the pace of adjustment is highly uncertain with significant downside risks," ADB Chief Economist Albert Park said.

"Economic growth in developing Asia and the Pacific remains resilient, but persistent headwinds caused by the conflict require a careful policy balance between supporting growth and containing inflation," he said.

The report warned that renewed escalation of the conflict and prolonged geopolitical uncertainty remain the biggest risks to the regional outlook. Those risks could further tighten energy markets, increase risk premiums, and intensify inflationary and external pressures.

The ADB also warned that tighter global financial conditions could raise sovereign borrowing costs and widen fiscal deficits across several economies. Higher tariffs and continued trade policy uncertainty could further slow economic activity, while rising fertilizer prices threaten agricultural output and food security.

The ADB lowered its 2026 growth forecasts for most subregions except developing East Asia.

Growth forecasts for the People's Republic of China were left unchanged at 4.6% for 2026 and 4.5% for 2027, supported by strong exports and infrastructure investment.

India's growth forecast for 2026 was revised down to 6.6% as higher energy costs weigh on domestic demand, while its 2027 forecast remained unchanged at 7.3%.

Growth projections for Southeast Asia and the Pacific were also lowered, reflecting weaker domestic demand and tourism, rising inflation, and higher import costs.