The Asian Development Bank (ADB) has revised down its economic growth forecast for developing economies across Asia and the Pacific, projecting growth of 4.9 per cent in 2026 compared with 5.5 per cent recorded in 2025. The latest estimate is 0.2 percentage points lower than the forecast released in April, according to the bank's latest economic outlook.
ADB attributed the downgrade largely to prolonged disruptions in global energy markets caused by the continuing conflict in the Middle East, which have weighed more heavily on the region's economic prospects than previously expected.
In its Asian Development Outlook July 2026, the bank said energy market disruptions are likely to ease only gradually despite a framework agreement reached in June. It noted that the economic impact has spread beyond fuel markets to affect fertilizer supplies, commodity prices and global supply chains, keeping inflationary pressures elevated across the region. Reflecting these trends, ADB has raised its regional inflation forecast for 2026 to 4.3 per cent, an upward revision of 0.7 percentage points from its April outlook.
"Durable implementation of the framework agreement would help normalise global energy markets, but the pace of adjustment is highly uncertain with significant downside risks," ADB Chief Economist Albert Park said.
"Economic growth in developing Asia and the Pacific remains resilient, but persistent headwinds arising from the conflict require policymakers to strike a careful balance between supporting growth and containing inflation," he added.
The report cautioned that any renewed escalation of the conflict or prolonged geopolitical uncertainty could further tighten energy markets, increase risk premiums and amplify inflationary as well as external sector pressures.
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It also warned that tighter global financial conditions are pushing up sovereign bond yields and borrowing costs, which are expected to widen fiscal deficits in several economies across the region. Higher fertilizer prices continue to threaten agricultural production and food security, while elevated trade policy uncertainty and increased tariffs present additional risks to growth.
ADB lowered its 2026 growth projections for most sub-regions, with developing East Asia being the only exception. The forecast for the People's Republic of China remains unchanged at 4.6 per cent in 2026 and 4.5 per cent in 2027, supported by continued infrastructure spending and resilient export performance.
India's growth projection for 2026 has been revised down to 6.6 per cent, with higher energy prices expected to weaken domestic demand. However, ADB retained its 2027 growth forecast for India at 7.3 per cent.
Growth forecasts for Southeast Asia and the Pacific have also been reduced, reflecting softer domestic demand, weaker tourism activity, rising inflation and higher import costs.
Despite the weaker near-term outlook, ADB maintained its regional growth forecast for 2027 at 5.1 per cent, expecting economic activity to recover as geopolitical tensions ease and inflationary pressures gradually subside. Regional inflation is also projected to moderate to 3.4 per cent in 2027.
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