West Asia crisis: ADB cuts growth outlook of Asia to 4.7%

New Delhi: The Asian Development Bank (ADB) on Wednesday downgraded its 2026 economic growth outlook to 4.7 percent from 5.1 percent earlier for Asia and the Pacific, as prolonged West Asia disruptions are fuelling energy prices and tightening financial conditions across the region.

In a special update to its economic forecasts, ADB also significantly raised inflation projections to 5.2 percent in 2026 from 3.6 percent earlier for the region.

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"Our revised outlook is a significant downward revision for growth and a sharp increase in inflation following a special update to reflect the deepening crisis," ADB President Masato Kanda said in a statement.

"We are confronting systemic, long-lasting disruptions to global energy and trade networks, not just temporary volatility. ADB will remain an agile partner in protecting the region’s economy, tracking fast-moving risks, and moving with urgency to scale up our support."

ADB now forecasts regional growth at 4.7 percent for the current year and 4.8 percent for the next, down from 5.1 percent for both years projected in its Asian Development Outlook (ADO) 2026 issued on April 10.

Inflation in the region is now projected to accelerate to 5.2 percent this year before easing to 4.1 percent in 2027, it said.

The revised outlook reflects growing evidence that the economic effects of the conflict have lasted longer than initially anticipated.

Continued risks to energy production and transport routes, alongside sustained pressure on oil and gas prices, are weakening growth prospects and raising inflation prospects, particularly for economies heavily dependent on imported fuel, remittances, tourism, or external financing, it said.

The new outlook assumes that oil prices average around USD 96 per barrel in 2026, substantially above the pre-conflict average of USD 69 per barrel in January and February, before easing to around USD 80 per barrel in 2027, it added.

Under an even more severe downside scenario of renewed conflict escalation, in which oil prices spike in May 2026 and remain even higher, growth in developing Asia and the Pacific could slow to 4.2 percent this year and 4 percent next year, while inflation could reach 7.4 percent in 2026, the ADB said.

Suggesting four key policy responses to meet challenges, it said policies should focus on stabilisation rather than suppression of price signals.

Allowing higher energy prices to pass through, at least in part, can encourage energy conservation, fuel switching, and investment in alternative energy sources, it said.

Fiscal support, where needed, should be targeted and time-bound, it said, adding that central banks should focus on limiting excessive market volatility while keeping a close watch on inflation expectations.

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Governments should curb energy demand where feasible. Practical measures include temperature mandates to limit air-conditioning, cuts to non-essential lighting, peak-hour electricity-saving campaigns, and work-from-home or staggered schedules, it said.

Incentivising public transport use and car-free days in urban areas on public holidays can also help reduce transport fuel use, it added.

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