ADB Outlook: Growth in Developing Asia to Slow as Middle East Conflict and Trade Risks Mount

The region’s growth is projected to ease to 5.1% in both 2026 and 2027, down from 5.4% in 2025, while inflation is expected to rise to 3.6% in 2026 and 3.4% in 2027, compared with 3.0% last year.

Economic growth across developing Asia and the Pacific is expected to moderate over the next two years as geopolitical tensions and global uncertainties weigh on the region’s outlook, according to the Asian Development Bank’s (ADB) Asian Development Outlook (ADO) April 2026.

The region’s growth is projected to ease to 5.1% in both 2026 and 2027, down from 5.4% in 2025, while inflation is expected to rise to 3.6% in 2026 and 3.4% in 2027, compared with 3.0% last year.

Middle East Conflict Emerges as Key Risk

ADB identifies the ongoing conflict in the Middle East as the single biggest threat to the region’s economic outlook, with the potential to trigger sustained increases in energy and food prices, disrupt trade flows, and tighten financial conditions.

“A prolonged conflict in the Middle East is the single biggest risk to the region’s outlook,” said ADB Chief Economist Albert Park, warning that elevated commodity prices and volatility could undermine growth.

The forecasts are based on an early stabilisation scenario, assuming the conflict does not escalate further. However, ADB cautions that recent developments suggest a higher likelihood of prolonged disruptions, which could further weaken economic performance.

Resilience Underpinned by Domestic Demand

Despite external headwinds, the region enters this period of uncertainty from a relatively strong position. ADB notes that:

• Robust domestic demand continues to support growth

• Stable labour markets are sustaining household consumption

• Increased public infrastructure spending is bolstering economic activity

These factors are helping cushion the impact of global shocks, even as risks intensify.

Inflation Pressures Driven by Energy and Food Costs

Rising inflation across the region is expected to be driven largely by:

• Elevated oil and energy prices

• Potential disruptions to fertilizer markets

• Spillover effects on global food prices

Higher transport and production costs are likely to feed through into consumer prices, placing pressure on households and businesses alike.

Trade Uncertainty Adds to Downside Risks

In addition to geopolitical tensions, renewed trade policy uncertainty is adding another layer of risk, potentially affecting exports, investment flows, and supply chains.

ADB warns that a combination of trade disruptions and prolonged conflict could significantly dampen regional growth.

Major Economies Face Moderating Growth

The outlook indicates a broad-based slowdown across major economies in the region:

• People’s Republic of China (PRC): Growth projected to decline to 4.6% in 2026 and 4.5% in 2027, from 5.0% in 2025, weighed down by property sector weakness and slower export growth

• India: Growth expected to ease to 6.9% in 2026, down from 7.6% in 2025, before rebounding to 7.3% in 2027, supported by strong domestic consumption

• Pacific economies: Facing the sharpest slowdown, with growth falling from 4.2% in 2025 to 3.4% in 2026 and 3.2% in 2027

Despite the slowdown, demand for emerging sectors—such as artificial intelligence-related goods—is expected to provide some support to regional economies.

Multiple Transmission Channels of Risk

ADB highlights several channels through which the Middle East conflict could impact the region:

• Higher commodity prices, especially oil and food

• Shipping and logistics disruptions, affecting trade routes

• Increased financial market volatility

• Pressure on exchange rates and capital flows

These factors could combine to create a more challenging macroeconomic environment for policymakers.

Policy Response Critical to Stability

ADB emphasises the importance of sound macroeconomic management to navigate the uncertain outlook.

Key policy priorities include:

• Maintaining fiscal and monetary discipline

• Implementing targeted support measures for vulnerable households

• Managing inflation while sustaining growth

• Strengthening resilience to external shocks

“Governments must act decisively to sustain growth and contain inflation,” Park said.

Outlook Hinges on Geopolitical Developments

The trajectory of the region’s economy will largely depend on how global tensions evolve. A prolonged or intensified conflict could push energy prices higher, disrupt trade further, and significantly weaken growth prospects.

Conversely, easing geopolitical tensions could stabilise commodity markets and support a more gradual recovery.

Balancing Growth and Stability in Uncertain Times

While developing Asia and the Pacific remains one of the world’s fastest-growing regions, the latest ADB outlook underscores a more cautious path ahead.

The combination of geopolitical risks, trade uncertainty, and inflationary pressures presents a complex challenge—requiring coordinated policy responses and sustained economic resilience.