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Asia · Economic Growth · Geopolitics · Inflation
The Asian Development Bank (ADB) announced that a prolonged Middle East conflict will cut economic growth in developing Asia and the Pacific by up to 1.3 percentage points through 2027, while simultaneously pushing inflation up by as much as 3.2 percentage points.
This impact stems from persistent energy market disruptions, higher oil prices, supply-chain strains, and tighter financial conditions. ADB Chief Economist Albert Park stated that Asian economies face a difficult trade-off between weaker growth and higher inflation, a contrast to the U.S., which is a major energy producer.
The multilateral bank predicts capital flows will shift towards U.S. dollar-denominated assets, increasing pressure on regional currencies. Developing Southeast Asian economies, including the Philippines and Thailand, will experience the most negative growth impacts, while South Asia, including India, will see the largest inflation spikes.
Remittance flows are also affected as reduced economic activity in the Gulf decreases labor demand and migrant workers' incomes. The ADB advises central banks to prioritize stability, avoid overly aggressive tightening, and provide targeted liquidity support to maintain orderly market functioning, given the external origin of inflationary pressure.
