West Asia conflict may hit Asia Pacific growth: ADB

In a short-term conflict scenario, energy price pressures could ease relatively quickly, limiting long-term economic damage. However, in the case of prolonged disruptions, the region may face sustained inflation and weaker growth, making recovery more challenging.

Metro India News | new delhi

The ongoing conflict in West Asia could pose a serious risk to economic stability across the Asia Pacific region, with growth likely to slow and inflation expected to rise sharply, according to a new report by the Asian Development Bank (ADB).

The report warns that if disruptions in energy markets persist for more than a year, economic growth in the region could decline by as much as 1.3 percentage points during 2026–2027. At the same time, inflation could increase by up to 3.2 percentage points, creating additional pressure on households and businesses already facing global uncertainties.

According to ADB, the primary transmission channels of the crisis include rising energy prices, supply chain disruptions, weaker trade flows, and tightening global financial conditions. The conflict’s ripple effects are also expected to impact tourism and remittance flows, which are crucial for several developing economies in the region.

The report outlines multiple risk scenarios, emphasizing that the severity of the impact will largely depend on how long the disruptions continue. In a short-term conflict scenario, energy price pressures could ease relatively quickly, limiting long-term economic damage. However, in the case of prolonged disruptions, the region may face sustained inflation and weaker growth, making recovery more challenging.

Developing economies in Southeast Asia and the Pacific are likely to bear the brunt of the slowdown in growth. Meanwhile, South Asian economies are expected to see sharper increases in inflation due to their higher sensitivity to energy price fluctuations. The ADB noted that these projections carry a high degree of uncertainty, given the unpredictable nature of geopolitical developments.

ADB Chief Economist Albert Park said governments in the region may be forced to manage a difficult balance between controlling inflation and supporting growth. He stressed the importance of policies that reduce market stress while protecting vulnerable populations. At the same time, governments should focus on strengthening long-term economic resilience to withstand future shocks.

The report recommends that policymakers allow energy prices to reflect market conditions to some extent, as this can encourage conservation, promote fuel switching, and support investment in alternative energy sources. It cautions against broad price controls and blanket subsidies, stating that such measures can distort markets, delay necessary adjustments, and lead to inefficient allocation of resources.

On fiscal policy, the ADB advises governments to provide targeted and time-bound support, particularly for low-income households and industries most affected by rising costs. Well-designed measures can help cushion the social impact of inflation without placing excessive strain on public finances.

Central banks, meanwhile, are encouraged to focus on maintaining financial stability by limiting excessive market volatility and closely monitoring inflation expectations. The report suggests that while some policy tightening may be necessary, overly aggressive actions could worsen growth prospects and increase financial instability. Clear and effective communication from central banks will be essential to maintain confidence.

To reduce energy demand, the ADB suggests practical steps such as limiting air-conditioning usage, cutting non-essential lighting, promoting electricity-saving campaigns during peak hours, and encouraging flexible work arrangements. Measures like increased use of public transport and car-free initiatives in urban areas can also help reduce fuel consumption.

The ADB, a multilateral development bank established in 1966 with 69 members, continues to support sustainable and inclusive growth across Asia and the Pacific.