Growth in Asia could slow sharply on prolonged Middle East conflict

Economy · Asian Development Bank

Growth in Asia could slow sharply on prolonged Middle East conflict, ADB says

A prolonged Middle East conflict could cut economic growth in developing Asia and the Pacific by up to 1.3 percentage points through 2027, while pushing inflation up by as much as 3.2 percentage points — if energy market disruptions persist for more than a year.

Max growth reduction
−1.3pp
Through 2027
Max inflation increase
+3.2pp
If disruptions persist >1 year
ADB chief economist
Albert Park
Issued the warning
Scenario explorer
Growth impact (pp) Inflation impact (pp)

Short-term disruption: moderate headwinds, manageable with standard monetary policy tools.

Growth impact (pp) Inflation impact (pp)

Prolonged disruption: worst-case scenario forces a difficult trade-off between weaker growth and higher inflation.

Regional impact breakdown
Southeast Asia
Most negative growth impacts
Philippines and Thailand highlighted as most exposed via energy cost absorption and capital outflows.
South Asia
Largest inflation spikes expected
India and peers face the sharpest price pressures as they lack domestic energy production to buffer rising import costs.
Gulf remittance corridor
Remittance flows at risk
Weaker Gulf economic activity may reduce labor demand, cutting migrant workers' incomes and the remittances sent home.
Contrast: United States
Net energy exporter
Unlike Asian economies, the U.S. offsets higher energy prices through domestic production — amplifying capital flow toward USD assets.

"Prolonged energy disruptions could force economies in developing Asia and the Pacific to navigate a difficult trade-off between weaker growth and higher inflation."

— Albert Park, ADB Chief Economist
ADB policy recommendations
  • Central banks should avoid overly aggressive tightening — rate hikes risk amplifying growth headwinds when inflation is externally driven.
  • Priority should be limiting excessive market volatility rather than targeting inflation directly through rate policy.
  • Provide targeted liquidity support to preserve orderly market functioning as the first line of defense.
  • Recognize that inflation pressure originates externally — conventional demand-side tools are a poor match for energy supply shocks.
Market context (as of publication)
Declines Gains

Selected market moves on day of publication. VIX at 27.44 (+8.33%) signals elevated uncertainty. Crude oil +3.84% reflects conflict premium.

Source: Asian Development Bank  ·  Wall Street Journal, March 26, 2026

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