By Kimberley Kao
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, the Asian Development Bank said.
The hit would come if energy market disruptions persist for more than a year, underscoring the region's exposure to higher oil prices, supply-chain strains and tighter financial conditions.
"Prolonged energy disruptions could force economies in developing Asia and the Pacific to navigate a difficult trade-off between weaker growth and higher inflation," said ADB Chief Economist Albert Park.
The effects are likely to be uneven across the region.
Unlike the U.S., a major energy producer and exporter, Asian economies will have to absorb higher energy costs. This could drive capital flows toward U.S. dollar?denominated assets, amplifying pressure on regional currencies, the multilateral bank said.
Economies in developing Southeast Asia, including the Philippines and Thailand, are likely to see the "most negative growth impacts," with the largest inflation spikes are expected be felt in South Asia, including India.
Remittance flows could also be affected, as weaker economic activity in the Gulf may reduce labor demand and migrant workers' incomes, the ADB said.
Policy responses should prioritize stability, it said, adding that central banks should avoid overly aggressive tightening, as these risk amplifying growth headwinds and financial volatility.
"Central banks should focus on limiting excessive market volatility," it said.
"Given that pressure on inflation originates externally, the first priority should be to provide targeted liquidity support to preserve orderly market functioning."
Write to Kimberley Kao at kimberley.kao@wsj.com
(END) Dow Jones Newswires
03-26-26 0725ET
