SINGAPORE: The Asian Development Bank on Wednesday cut its economic growth forecast for the region to 4.7 percent this year and 4.8 percent next year, down from earlier projections of 5.1 percent for both years, due to the war in the Middle East.
It also raised its inflation forecast for Asia and the Pacific to 5.2 percent in 2026 from an earlier projection of 3.6 percent.
ADB President Masato Kanda called it a “significant downward revision” that reflected how the war had raised energy prices, tightened financial conditions and weighed on economic activity across the region.
“We are confronting systemic, long-lasting disruptions to global energy and trade networks, not just temporary volatility,” he said in a statement.
Earlier this month, the International Monetary Fund cut its 2026 global growth outlook to 3.1 percent because of the Iran war.
“For commodity exporters directly affected by the conflict, diminished production and exports imply a severe downward revision of GDP growth projections for 2026,” the report said.
The scale of the impact depends “on the degree of damage suffered in energy and transportation infrastructure as well as the dependence on the Strait of Hormuz and availability of alternative export routes,” the Washington-based lender added.
The IMF warned that since February, global equity prices have declined 8 percent while sovereign bond yields have risen sharply, driven by a jump in energy prices and market expectations of higher inflation.
Bond market volatility has also been spurred by rising debt-to-GDP levels and the greater issuance of short-term securities which are more vulnerable to rollover risks during rising inflation. That could lead funding markets to tighten, which has spurred broader turmoil in the past, the IMF said.
The ADB said if the conflict escalated it could lead to a more severe economic impact. As an example, it said if oil prices spiked in May and then stayed high, growth in developing Asia and the Pacific could slow to 4.2 percent this year and 4 percent in 2027, with inflation surging to 7.4 percent this year.
“Central banks should focus on limiting excessive market volatility while keeping a close watch on inflation expectations,” it said.
