The Asian Development Bank on Wednesday reduced its near-term growth projections for the Asia and Pacific region and raised its inflation forecast, attributing the changes to economic disruptions stemming from the war in the Middle East.
In its updated outlook the ADB trimmed its growth forecast to 4.7% for this year and 4.8% for next year, down from its prior projections of 5.1% for both years. At the same time, it increased its inflation forecast for Asia and the Pacific to 5.2% in 2026, up from an earlier estimate of 3.6%.
ADB President Masato Kanda described the revision as a "significant downward revision" and said it reflected how the conflict had lifted energy prices, tightened financial conditions and put pressure 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.
The bank noted that the outlook could worsen if the conflict spreads. It presented a scenario in which an oil-price spike in May that remained elevated would slow growth in developing Asia and the Pacific to 4.2% this year and 4.0% in 2027, while sending inflation up to 7.4% this year.
Against that backdrop, the ADB urged central banks to focus on "limiting excessive market volatility while keeping a close watch on inflation expectations."
Separately, the ADB's update referenced broader adjustments to global forecasts, noting earlier this month the International Monetary Fund reduced its 2026 global growth outlook to 3.1% because of the Iran war.
The revised ADB projections highlight the dual channels through which the conflict is affecting the region: higher energy costs and tighter financial conditions. Together these channels can suppress activity by increasing input costs for industry and by restricting credit and market liquidity, according to the bank's assessment.
While the ADB's baseline assumes the current conflict-related disruptions remain contained, its sensitivity exercise illustrates the scale of damage that a persistent oil-price shock could inflict on regional growth and inflation.
Policy guidance in the update centers on monetary authorities' role in stabilizing markets and guarding inflation expectations. The bank's call signals concern about the balance between limiting volatility and maintaining price stability in a more uncertain global environment.
The ADB's revised numbers and scenario analysis provide a framework for policymakers and market participants to weigh risks tied to energy markets and financial conditions as the region navigates the evolving geopolitical shock.