The Asian Development Bank (ADB) has revised its economic growth forecast for the Asia-Pacific region downward, citing the ongoing war in the Middle East as a primary factor. On Wednesday, the ADB projected a growth rate of 4.7 percent for 2026 and 4.8 percent for 2027, a reduction from its earlier estimates of 5.1 percent for both years.
Inflation Projections Revised Upward
In addition to the growth downgrade, the ADB significantly raised its inflation forecast for Asia and the Pacific to 5.2 percent in 2026, up from a previous projection of 3.6 percent. ADB President Masato Kanda described the revision as a “significant downward revision,” reflecting how the conflict has driven up 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,” Kanda stated.
IMF Also Revises Global Outlook
Earlier in April, the International Monetary Fund (IMF) cut its 2026 global growth outlook to 3.1 percent, attributing the revision to the Iran war. The IMF noted that commodity exporters directly affected by the conflict face a severe downward revision of GDP growth projections for 2026 due to diminished production and exports.
The scale of the economic impact, according to the IMF, depends on the degree of damage to energy and transportation infrastructure, as well as reliance on the Strait of Hormuz and the availability of alternative export routes.
Market Volatility and Funding Risks
The IMF warned that since February, global equity prices have fallen by 8 percent, while sovereign bond yields have risen sharply. This trend is driven by a surge in energy prices and market expectations of higher inflation. Bond market volatility has also been exacerbated by rising debt-to-GDP levels and increased issuance of short-term securities, which are more vulnerable to rollover risks during periods of rising inflation.
Such conditions could lead to tighter funding markets, which have historically sparked broader financial turmoil, the IMF cautioned.
Potential Escalation Scenarios
The ADB warned that if the conflict escalates, the economic impact could be more severe. For instance, if oil prices spike in May and remain elevated, 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 in 2026.
“Central banks should focus on limiting excessive market volatility while keeping a close watch on inflation expectations,” the ADB advised.
