The Asian Development Bank (ADB) warned that a prolonged conflict in the Middle East could shave up to 1.3 percentage points off economic growth in developing Asia and the Pacific over 2026–2027, while pushing inflation higher by as much as 3.2 percentage points if energy disruptions persist for more than a year.
In a policy brief, the ADB said the region faces a complex transmission of shocks—from surging energy prices to supply chain disruptions and tighter global financial conditions. Tourism flows and remittances, key growth drivers for several economies, could also weaken under a prolonged crisis.
The bank outlined three risk scenarios, noting that the severity of the impact hinges on how long disruptions last. A short-lived conflict would likely see energy prices stabilize quickly, limiting economic damage. But extended supply constraints could entrench inflation and slow growth more broadly.
Southeast Asia and Pacific economies are expected to bear the brunt of slower growth, while South Asia could see the sharpest inflation spikes, reflecting differences in energy dependence and economic structure.
“Prolonged energy disruptions could force economies in developing Asia and the Pacific to navigate a difficult trade-off between weaker growth and higher inflation,” said ADB Chief Economist Albert Park. He urged governments to focus on stabilizing markets while protecting vulnerable sectors and households.
The ADB emphasized that policy responses should prioritize targeted interventions over broad subsidies. Allowing some pass-through of higher energy prices can encourage conservation and investment in alternative energy, while poorly designed controls risk distorting markets.
Fiscal support, it added, should be temporary and focused on the most affected groups to limit budget strain. Meanwhile, central banks are advised to guard against excessive volatility without over-tightening, which could further dampen growth.
The report also urged governments to adopt demand-side measures such as energy-saving campaigns and transport efficiency initiatives to ease pressure on fuel consumption, while strengthening long-term economic resilience.
