Prolonged energy market disruptions to lift APAC inflation, ADB warns

The Middle East conflict prompts 2026 growth forecast cut to 4.9%.

Prolonged disruptions to global energy markets linked to the Middle East conflict are expected to keep inflation elevated and weigh on economic growth across developing Asia and the Pacific (APAC), according to the Asian Development Bank (ADB).

In its Asian Development Outlook July 2026, ADB said disruptions to global energy markets are likely to unwind gradually despite a framework agreement signed in June.

“With impacts extending beyond energy to fertilisers, other commodity prices, and supply chains, inflationary pressures are likely to persist,” it said.

ADB raised its regional inflation forecast for 2026 to 4.3% from 3% in 2025, a 0.7 percentage-point increase from its April projection, whilst maintaining its 2027 inflation forecast at 3.4%.

The bank also lowered its 2026 growth forecast for developing APAC to 4.9% from its April projection of 5.1%, citing prolonged disruptions to global energy markets.

The bank forecasts developing APAC growth at 4.9% in 2026, down from 5.5% in 2025.

It maintained its 2027 growth forecast at 5.1%, reflecting recovering activity as pressures from energy market disruptions ease.

“Durable implementation of the framework agreement would help normalise global energy markets, but the pace of adjustment is highly uncertain, with significant downside risks,” said Albert Park, Chief Economist at ADB.

Park added that persistent headwinds caused by the conflict require a careful policy balance between supporting growth and containing inflation, despite economic growth in developing APAC remaining resilient.

ADB said renewed conflict escalation and prolonged geopolitical uncertainty remain key risks to the regional outlook.

It said these could tighten energy markets further, increase borrowing costs and inflationary pressures, widen fiscal deficits, and weigh on economic activity through higher tariffs and trade policy uncertainty.

The lender also said rising fertiliser prices continue to pose risks to agricultural output and food security.

ADB left its growth forecasts for the People's Republic of China unchanged at 4.6% for 2026 and 4.5% for 2027, supported by strong exports and infrastructure investment.

It lowered India's 2026 growth forecast to 6.6%, citing higher energy costs that are expected to weigh on domestic demand, whilst maintaining its 2027 forecast at 7.3%.

ADB also trimmed its 2026 growth forecasts for Southeast Asia and the Pacific, citing weaker domestic demand and tourism, rising inflation, and higher import costs.